S-11/A

As filed with the Securities and Exchange Commission on August 30, 2005

Registration No. 333-121238

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

PRE-EFFECTIVE

AMENDMENT NO. 4 TO

Form S-11

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Cornerstone Core Properties REIT, Inc.

(Exact name of registrant as specified in its governing instruments)

4590 MacArthur Blvd., Suite 610

Newport Beach, California 92660

(949) 852-1007

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Terry G. Roussel

President

Cornerstone Core Properties REIT, Inc.

4590 MacArthur Blvd., Suite 610

Newport Beach, California 92660

(949) 852-1007

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Karen N. Winnett, Esq.

Raymond L. Veldman, Esq.

Preston Gates & Ellis LLP

1900 Main Street, Suite 600

Irvine, California 92614-7319

(949) 253-0900

          Approximate date of commencement of proposed sale to public: As soon as practicable after the effectiveness of the registration statement.

          If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.     o

          If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.     o

          If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.     o

           The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the SEC and various states is effective. This prospectus is not an offer to sell these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION — PRELIMINARY PROSPECTUS DATED AUGUST 30, 2005

Maximum Offering — 55,400,000 Shares of Common Stock

Minimum Offering — 125,000 Shares of Common Stock

        Cornerstone Core Properties REIT, Inc. is a newly organized Maryland corporation sponsored by Cornerstone Realty Advisors, LLC. Affiliates of Cornerstone Realty Advisors, LLC have been real estate investment fund managers for over 15 years and have profitably completed the investment cycle averaging 4.4 years for 8 prior funds which have invested in multi-tenant industrial real estate. These properties were purchased, owned and operated during different economic cycles. We expect to use the net proceeds of this offering to invest in multi-tenant industrial properties and other types of properties. Because we have not yet identified specific properties to purchase, we are considered to be an unspecified property fund otherwise known as a “blind pool” offering. We intend to qualify as a REIT. We are not a mutual fund registered under the Investment Company Act of 1940.

     We are offering up to 44,400,000 shares of common stock at $8 per share in our primary offering. Reduced prices are available for certain categories of purchasers as described in “Plan of Distribution.” We are also offering up to 11,000,000 shares to be issued pursuant to our distribution reinvestment plan at a purchase price of $7.20 per share.

      See “Risk Factors” beginning on page 14 to read about risks you should consider before buying shares of our common stock, including:

•  No public market exists for our common stock. It may be difficult for you to sell your shares.

•  If you sell your shares, it may be at a substantial discount.

•  There are limits on the ownership, transferability and redemption of our shares.

•  We do not own any properties and do not have an operating history. This is a blind pool offering.

•  We may lack property diversification if we do not raise substantially more than the minimum offering.

•  Our failure to qualify as a REIT could adversely affect the amount of distributions we make to our stockholders.

•  We may borrow funds, issue new securities or sell assets to make distributions or for working capital.

•  We may make distributions which are not from income and are a return of capital.

•  We are dependent upon our advisor to select our investments and conduct our operations.

•  We expect to invest approximately 88.3% of the offering proceeds in real estate investments if the maximum offering amount is sold and to use the balance to pay commissions, fees and expenses, a substantial portion of which will be paid to our advisor and its affiliates.

•  Our advisor and its affiliates will face significant conflicts of interest.

      This investment involves a high degree of risk. You should purchase these securities only if you can afford a complete loss of your investment.

     Neither the SEC, the Attorney General of the State of New York nor any other state securities regulator has approved or disapproved of our common stock, determined if this prospectus is truthful or complete, or passed on or endorsed the merits of this offering. Any representation to the contrary is a criminal offense.

     The use of projections or forecasts in this offering is prohibited. Any representation to the contrary and any predictions, written or oral, as to the amount or certainty of any present or future cash benefit or tax consequence which may flow from an investment in our stock is not permitted.

				Sales		Dealer		Net Proceeds
		Price to Public		Commissions*		Manager Fee*		(Before Expenses)
Primary Offering
	Per Share	$	8.00	$	0.56	$	0.24	$	7.20
	Total Minimum		1,000,000		70,000		30,000		900,000
	Total Maximum		355,200,000		24,864,000		10,656,000		319,680,000
Distribution Reinvestment Plan
	Per Share		7.20		0		0		7.20
	Total Maximum		79,200,000		0		0		79,200,000

*  The maximum amount of sales commissions we will pay is 7% of the gross offering proceeds in our primary offering. The maximum amount of dealer manager fees we will pay is 3% of the gross offering proceeds in our primary offering. The sales commissions and, in some cases, the dealer manager fee will not be charged or may be reduced with regard to shares sold to or for the account of certain categories of purchasers. The reduction in these fees will be accompanied by a corresponding reduction in the per share purchase price, except that all shares sold under the distribution reinvestment plan will be at $7.20 per share. See “Plan of Distribution.”

     The dealer manager of this offering, Pacific Cornerstone Capital, Inc., is our affiliate and will offer the shares on a best-efforts basis. There is a minimum investment of $2,000 (or $1,000 for IRAs, Keoghs and tax-qualified retirement plans). We will not complete the sale of any common stock unless we sell a minimum of $1,000,000 of stock to the public by                 , 2006 (one year from the date of this prospectus). Pending satisfaction of this condition, all subscription payments will be placed in an account held by the escrow agent, U.S. Bank, N.A., in trust for subscribers’ benefit, pending release to us. If we do not sell at least $1,000,000 of stock by                 , 2006, we will promptly return all funds in the escrow account (including interest), and we will stop selling shares. If we sell $1,000,000 of stock in the primary offering, then we may continue to offer shares in the primary offering until the earlier of                 , 2007, or until the maximum primary offering amount is raised.

                , 2005

SUITABILITY STANDARDS

      The shares we are offering are suitable only as a long-term investment. Because there is no public market for the shares, an investment in our stock is considered illiquid and you will have difficulty selling your stock. In consideration of these factors, we require initial stockholders and subsequent purchasers to have either:

•  a net worth of at least $150,000; or

•  gross annual income of at least $45,000 and a net worth of at least $45,000.

      For purposes of determining suitability of an investor, net worth in all cases should be calculated excluding the value of an investor’s home, home furnishings and automobiles. In the case of sales to fiduciary accounts, these suitability standards must be met by the fiduciary account, by the person who directly or indirectly supplied the funds for the purchase of the stock if such person is the fiduciary or by the beneficiary of the account.

      Those selling stock on our behalf must make every reasonable effort to determine that the purchase of stock in this offering is a suitable and appropriate investment for each stockholder based on information provided by the stockholder regarding the stockholder’s financial situation and investment objectives. See “Plan of Distribution — Suitability Standards” for a detailed discussion of the determinations regarding suitability that we require of all those selling stock on our behalf.

For Arizona Residents

      Stock will only be sold to residents of the State of Arizona representing that they meet one of the following suitability standards:

      (1) a net worth of at least $400,000; or

      (2) gross annual income of at least $200,000 and a net worth of at least $200,000.

For California, Iowa, Michigan, New Mexico and Tennessee Residents

      Stock will only be sold to residents of the States of California, Iowa, Michigan, New Mexico and Tennessee representing that they meet one of the following suitability standards:

      (1) a net worth of at least $225,000; or

      (2) gross annual income of at least $60,000 and a net worth of at least $60,000.

For Kansas Residents

      It is recommended that Kansas investors should invest no more than 10% of their liquid net worth in our stock and the securities of other real estate investment trusts.

For Maine Residents

      Stock will only be sold to residents of the State of Maine representing that they meet one of the following suitability standards:

      (1) a net worth of at least $200,000 (not including home, furnishings, and personal automobiles); or

      (2) gross annual income of at least $50,000 and a net worth of at least $50,000 (not including home, furnishings, and personal automobiles).

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For Massachusetts and Ohio Residents

      Stock will only be sold to residents of the States of Massachusetts and Ohio representing that their investment does not exceed 10% of their net worth not including home, home furnishings and automobiles and that they meet one of the following suitability standards:

      (1) a net worth of at least $250,000 (not including home, furnishings, and automobiles); or

      (2) gross annual income of $70,000 and a net worth of at least $70,000 (not including home, furnishings, and automobiles).

For Pennsylvania Residents

      Pennsylvania investors may not invest more than 10% of their net worth, excluding home, furnishings and automobiles. In addition, stock will only be sold to residents of the State of Pennsylvania representing that they possess a net worth of $1 million or more.

      Because the minimum closing amount is less than $17,760,000 you are cautioned to carefully evaluate our ability to fully accomplish our stated objectives and to inquire as to the current dollar volume of subscriptions.

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TABLE OF CONTENTS

Suitability Standards		i
Prospectus Summary		1
	Cornerstone Core Properties REIT, Inc.	1
	The Offering	1
	Special 10% Stock Distribution for Early Investors	2
	Our Advisor	2
	Our Management	2
	Investment Objectives	3
	Our Liquidity Strategy	3
	Our REIT Status	4
	Restriction on Stock Ownership and Transferability	4
Questions and Answers About this Offering		6
Cautionary Note Regarding Forward-Looking Statements		13
Risk Factors		14
	Investment Risks	14
	Risks Related to Conflicts of Interest	17
	Risks Related to This Offering and Our Corporate Structure	20
	General Risks Related to Investments in Real Estate	24
	Risks Associated with Debt Financing	28
	Federal Income Tax Risks	29
	Retirement Plan Risks	31
Estimated Use of Proceeds		33
Management		35
	Board of Directors	35
	Committees of the Board of Directors	35
	Executive Officers and Directors	36
	Compensation of Directors	39
	Employee and Director Incentive Stock Plan	40
	Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents	42
	Our Advisor	42
	The Advisory Agreement	43
	Management Decisions	44
	Initial Investment by Our Advisor	44
	Dealer Manager	45
Management Compensation		46
Stock Ownership		52
Conflicts of Interest		53
	Our Advisor’s Interests in Other Real Estate Programs	53
	Receipt of Fees and Other Compensation by Our Advisor and its Affiliates	54
	Our Board’s Loyalties to Existing and Future Programs Sponsored by Our Advisor	54
	Fiduciary Duties Owed by Some of Our Affiliates to Our Advisor and Our Advisor’s Affiliates	55
	Affiliated Dealer Manager	55
	Affiliated Property Manager	55
	Lack of Separate Representation	55
	Certain Conflict Resolution Procedures	55

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Investment Objectives and Acquisition Criteria		59
	Investment Objectives	59
	Investment Strategy	60
	Acquisition Policies	60
	Property Selection	61
	Borrowing Policies	64
	Selling Policies	65
	Investment Limitations	65
Plan of Operation		67
	General	67
	Liquidity and Capital Resources	67
	Results of Operations	68
	Inflation	68
	REIT Status	68
	Critical Accounting Policies	69
	Distributions	72
Prior Performance Summary		73
	Public Program	73
	Private Programs	73
Federal Income Tax Considerations		74
	Federal Income Taxation of the Company	75
	Requirements for Qualification	76
	Annual Distribution Requirements	80
	Earnings and Profits	81
	Failure to Qualify as a REIT	81
	Sale-Leaseback Transactions	81
	Taxation of U.S. Stockholders	82
	Information Reporting Requirements and Backup Withholding Tax	84
	Tax Aspects of Our Operating Partnership	84
	State and Local Tax	85
ERISA Considerations		85
	Prohibited Transactions	86
	Plan Asset Considerations	86
	Other Prohibited Transactions	88
	Annual Valuation	88
Description of Stock		90
	Common Stock	90
	Preferred Stock	90
	Issuance of Additional Securities and Debt Instruments	90
	Meetings and Special Voting Requirements	91
	Restriction on Ownership of Stock	91
	Stockholder Liability	94
	Distributions	94
	Special 10% Stock Dividend for Early Investors	94
	Distribution Reinvestment Plan	95
	Proposed Stock Repurchase Program	97
	Registrar and Transfer Agent	98
	Uncertificated Shares of Stock	99
	Restrictions on Roll-Up Transactions	99

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	Business Combinations	100
	Control Share Acquisition	100
	Subtitle 8	101
	Advance Notice of Director Nominations and New Business	102
	Anti-Takeover Effect of Certain Provisions of Maryland Law and of the Charter and Bylaws	102
	Your Access to Our Records	102
The Operating Partnership Agreement		103
	General	103
	Capital Contributions	103
	Operations	103
	Distributions and Allocations of Profits and Losses	103
	Rights, Obligations and Powers of the General Partner	104
	Exchange Rights	105
	Change in General Partner	105
	Transferability of Interests	106
	Amendment of Limited Partnership Agreement	106
Plan of Distribution		107
	General	107
	Compensation of Dealer Manager and Participating Broker-Dealers	107
	Deferred Commission Option	109
	Subscription Procedures	110
	Suitability Standards	111
	Minimum Purchase Requirements	112
	Special Notice to Pennsylvania Investors	112
Supplemental Sales Material		113
Legal Matters		113
Experts		113
Where You Can Find More Information		113
Electronic Delivery of Documents		114
Index to Consolidated Balance Sheets and Prior Performance Tables		F-1
Report of Independent Registered Public Accounting Firm		F-2
PRIOR PERFORMANCE TABLES		P-1
	TABLE I EXPERIENCE IN RAISING AND INVESTING FUNDS	P-2
	TABLE II COMPENSATION TO SPONSOR	P-3
	TABLE III OPERATING RESULTS OF PRIOR PROGRAMS	P-4
	TABLE IV RESULTS OF COMPLETED PROGRAMS	P-6
	TABLE V SALES OR DISPOSALS OF PROPERTIES	P-8
	TABLE VI ACQUISITIONS OF PROPERTIES BY PROGRAMS	P-10
Appendix A — Subscription Agreement (Sample) with Instructions		A-1
Appendix B — Distribution Reinvestment Plan		B-1
EXHIBIT 1.1
EXHIBIT 1.2
EXHIBIT 3.2
EXHIBIT 3.3
EXHIBIT 8.1
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 23.1
EXHIBIT 23.2

v

PROSPECTUS SUMMARY

      This prospectus summary highlights material information contained elsewhere in this prospectus. Because it is a summary, it may not contain all of the information that is important to you. To understand this offering fully, you should read the entire prospectus carefully, including the “Questions and Answers About this Offering” and “Risk Factors” sections and the financial statements, before making a decision to invest in our stock.

Cornerstone Core Properties REIT, Inc.

      Cornerstone Core Properties REIT, Inc. is a newly organized Maryland corporation sponsored by Cornerstone Realty Advisors, LLC. We are a non-traded real estate company that intends to use the net proceeds of this offering to invest in core real estate including multi-tenant industrial properties that are:

•  owned and operated on an all cash basis with no permanent financing;

•  high quality, existing and currently producing income;

•  leased to a diverse tenant base; and

•  leased with overall shorter term operating type leases, allowing for annual rental increases and greater potential for capital growth.

      We intend to seek potential property acquisitions meeting the above criteria and which are located in major metropolitan markets throughout the United States. Among the most important criteria we expect to use in evaluating the markets in which we purchase properties are:

•  high population;

•  historically high levels of tenant demand and lower historic investment volatility for the type of property being acquired;

•  high historic and projected employment growth;

•  low household income volatility and low general economic volatility;

•  a scarcity of land for new competitive projects; and

•  sound real estate fundamentals, such as low vacancy rates and strong rent rate potential.

      The markets in which we invest may not meet all of these criteria and the relative importance that we assign to any one or more of these criteria may differ from market to market or change as general economic and real estate market conditions evolve. We may also consider additional important criteria in the future.

      We do not currently own any properties and do not have an operating history. Because we have not yet identified specific properties to purchase, we are considered to be an unspecified property fund also known as “blind pool” offering. We intend to qualify as a REIT.

The Offering

      We are offering up to 44,400,000 shares of our common stock in our primary offering at $8 per share, with reduced prices available for certain categories of purchasers as described in “Plan of Distribution” section of this prospectus. We are also offering 11,000,000 shares of common stock under our distribution reinvestment plan at $7.20 per share. Our stock is being offered on a “best efforts” basis. The broker-dealers participating in the offering are only required to use their best efforts in distributing the stock and have no firm commitment or obligation to purchase any of the stock. As a result, we may not sell all or any of the stock that we are offering. The minimum amount we will raise is $1,000,000. If we do not raise the minimum of $1,000,000 prior to                     , 2006 (one year from the date of this prospectus), we will promptly return all funds in the escrow account (including interest), and we will stop selling shares. If we do not raise substantially more than the minimum offering, we will not be able to acquire a large portfolio

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of properties and we may lack property diversification. Prior to the date of this prospectus, our advisor and its affiliates acquired 125 shares of our common stock and $200,000 of limited partnership units in Cornerstone Operating Partnership, L.P., our operating partnership.

      The minimum initial investment is $2,000. Tax qualified retirement plans, including Keogh plans and IRAs must initially invest at least $1,000. Minimum investment levels may be higher in certain states. After your initial investment, you may purchase additional shares subject to a minimum $100 purchase unless your state law imposes additional restrictions. This minimum purchase amount does not apply to purchases through our distribution reinvestment plan.

      We intend to invest the net proceeds from this offering in real estate investments. Although we intend to focus on acquiring multi-tenant industrial properties, we may also invest in other types of properties. We may also invest through joint ventures or other entities that make real estate investments.

Special 10% Stock Distribution for Early Investors

      Our board of directors intends to authorize a special 10% stock distribution to be paid to the stockholders of record on the date that we raise the first $125,000,000 in this offering. Investors who purchase our stock on or before the record date for this special 10% stock distribution will receive one additional share of stock for every 10 shares of stock they own as of that date. This special 10% stock distribution has the effect of lowering the effective purchase price per share paid by these early investors by approximately 10%. The price at which we would redeem your stock pursuant to our stock repurchase program is based on the actual purchase price you pay for your shares and is not affected by the special 10% stock distribution. Stock distributions are generally not subject to federal income tax.

Our Advisor

      Our advisor is Cornerstone Realty Advisors, LLC, a newly formed limited liability company. Some of our directors are also directors of our advisor and all of our officers are also officers of our advisor. The sole member of our advisor is Cornerstone Industrial Properties, LLC.

      Our advisor will be responsible for managing our affairs on a day-to-day basis and for identifying and making property acquisitions on our behalf. We are dependent upon our advisor to select our investments and conduct our operations. The directors and officers of our advisor have been actively involved in the acquisition, financing, development, management and operation of more than $5 billion of investment real estate including industrial, apartment, office and retail properties.

Our Management

      A majority of our directors are independent of our advisor. All of our officers and some of our directors are affiliated with our advisor. Our charter provides that our independent directors are responsible for reviewing the performance of our advisor. Our board of directors, including a majority of our independent directors, must approve any transactions between us and our advisor or its affiliates. A majority of our directors, including a majority of our independent directors, must also approve other matters set forth in our charter. See “Conflicts of Interest — Certain Conflict Resolution Procedures.” Our directors are elected annually by our stockholders. Our advisor has the right to nominate the directors other than our independent directors.

      Our officers and some of our directors will also face conflicts because of their affiliation with our advisor. See the “Conflicts of Interest” section of this prospectus for a detailed discussion of the various conflicts of interest relating to your investment as well as the procedures we have established to mitigate a number of these potential conflicts.

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      The following chart shows how we are affiliated with our advisor and our operating partnership.

Investment Objectives

      Our primary investment objectives are to:

•  preserve stockholder capital by owning and operating real estate on an all-cash basis with no permanent financing;

•  purchase properties with the potential for capital appreciation to our stockholders;

•  purchase income-producing properties which will allow us to pay cash distributions to our stockholders at least quarterly, if not more frequently; and

•  provide liquidity to our stockholders within the shortest reasonable time necessary to accomplish the above objectives.

      When we refer to “permanent financing” we mean debt financing which is not repaid with the proceeds of this offering. We will purchase primarily tenant occupied properties but we may also purchase vacant properties from time to time. See the “Investment Objectives and Criteria” section of this prospectus for a more complete description of our investment policies and charter-imposed investment restrictions.

Our Liquidity Strategy

      Within five years from the closing of this offering, our board of directors will take one or more of the following actions to provide enhanced liquidity for our stockholders:

•  modify our stock repurchase program to allow us to use proceeds from the sale of our properties to redeem shares;

•  seek stockholder approval to begin an orderly liquidation of our assets and distribute the available proceeds of such sales to our stockholders;

•  list our stock for trading on a national securities exchange or the Nasdaq National Market; or

•  seek stockholder approval of another liquidity event such as a sale of our assets or a merger with another entity.

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You should consider the following risks and the “Risk Factors” beginning on page 14 before buying shares of our common stock, including:

•  No public market exists for our common stock. It may be difficult for you to sell your shares.

•  If you sell your shares, it may be at a substantial discount.

•  There are limits on the ownership, transferability and redemption of our shares.

•  We do not own any properties and do not have an operating history. This is a blind pool offering.

•  We may lack property diversification if we do not raise substantially more than the minimum offering.

•  Our failure to qualify as a REIT could adversely affect the amount of distributions we make to our stockholders.

•  We may borrow funds, issue new securities or sell assets to make distributions or for working capital.

•  We may make distributions which are not from income and are a return of capital.

•  We are dependent upon our advisor to select our investments and conduct our operations.

•  We expect to pay substantial fees and reimburse expenses to our advisor and its affiliates.

•  Our advisor and its affiliates will face significant conflicts of interest.

Our REIT Status

      If we qualify as a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. Under the Internal Revenue Code, REITs are subject to numerous organizational and operational requirements in order to avoid taxation as a regular corporation, including a requirement that they generally distribute at least 90% of their annual taxable income to their stockholders. If we fail to qualify for taxation as a REIT in any year, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify. Our failure to qualify as a REIT could result in us having a significant liability for taxes, and could adversely affect the amount of distributions we make to our stockholders. We have received an opinion of tax counsel that, based solely on our representations with respect to factual matters concerning our organization, our business operations and our properties, we will qualify for taxation as a REIT for the taxable year that will end December 31, 2005. This opinion is also subject to our meeting the requirements summarized above and other qualifications described in the opinion and in this prospectus under “Certain Federal Income Tax Considerations.” Accordingly, because our satisfaction of such requirements will depend upon future events, including the final determination of financial and operational results, no assurance can be given that we will satisfy the REIT requirements during the taxable year that will end December 31, 2005, or in any future year. Even if we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income and property and to federal income and excise taxes on our undistributed income.

Restriction on Stock Ownership and Transferability

      There are limits on the ownership and transferability of our shares. Our charter prevents any one person from owning more than 9.8% in number of shares or value, whichever is more restrictive, of the outstanding shares of any class or series of our stock unless exempted by our board of directors. These restrictions are designed to enable us to comply with ownership restrictions imposed on REITs by the Internal Revenue Code. See “Description of Stock — Restriction on Ownership of Stock.” Our charter also limits your ability to transfer your stock to prospective stockholders unless (i) they meet suitability standards regarding income or net worth, which are described under “Suitability Standards” and (ii) the

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transfer complies with minimum purchase requirements, which are described at “Plan of Distribution — Minimum Purchase Requirements.”

ERISA Considerations

      The section of this prospectus entitled “ERISA Considerations” describes how an investment in our stock will work in individual retirement accounts and retirement plans subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), and/or the Internal Revenue Code. ERISA is a federal law that regulates the operation of certain tax-advantaged retirement plans. Any retirement plan trustee or individual considering purchasing stock for a retirement plan or an individual retirement account should read this section of the prospectus very carefully.

Additional Information

      For more information about the offering, or if you would like additional copies of this prospectus, you should contact your financial advisor or:

Investor Services Department

Cornerstone Realty Funds

4590 MacArthur Blvd., Suite 610

Newport Beach, California 92660

Telephone: (877) 805-3333 or (949) 852-1007

Fax: (949) 852-2729

E-mail: info@cornerstonerealtyfunds.com

      We also maintain an Internet site at http://www.cornerstonerealtyfunds.com where you can review additional information about us and our affiliates. The contents of our web site are not incorporated herein by reference or otherwise made a part of this prospectus.

5

QUESTIONS AND ANSWERS ABOUT THIS OFFERING

      Below are some of the more frequently asked questions and answers relating to this offering. Please see the “Prospectus Summary” and the remainder of this prospectus for more detailed information about this offering.

General Questions about Investing in Real Estate

Q: Why should I invest in real estate?

A: Real estate has historically been one of the leading asset classes used by institutional investors, such as insurance companies and pension funds, to diversify their stock, bond and mutual fund portfolios. We believe that certain types of real estate investments can also provide safety, growth and income while reducing the overall portfolio volatility of many investors. Many individual investors have benefited by adding real estate to their investment strategy. You and your investment advisor can determine whether this strategy is right for you.

Q: How do institutional investors allocate their real estate investments?

A: Institutional investors generally allocate the largest portion of their real estate investments to “core” real estate. We define core real estate as all-cash (debt-free) properties located in major metropolitan markets with historically high levels of tenant demand for the type of real estate being acquired. We believe that all-cash core real estate should be used as the foundation for most individual real estate investment portfolios. Once the all-cash core foundation is in place to reduce overall risk, institutional investors with a higher risk tolerance tend to add real estate with debt to their portfolio in order to increase their yield potential. We believe individual investors could benefit by following the same institutional strategy.

Q: What will all-cash core real estate do for my investment portfolio?

A: Because core real estate is typically owned all-cash with no debt financing, it generally offers a higher level of safety and stability than real estate owned with debt. All-cash, debt-free real estate is not subject to the risk of foreclosure or the risk of rising interest rates and is therefore more stable during uncertain economic times.

Q: How can I participate in all-cash core real estate investments?

A. There are several ways. One way is to purchase stock in a publicly traded company that invests in all-cash core real estate. Another way is to invest in a non-traded real estate company. We are a non-traded, all-cash, core real estate company.

Q: Why would I invest in a non-traded versus a traded real estate company?

A:  Direct investments in investment grade real estate have historically demonstrated greater stability and lower overall volatility than investments in traded real estate companies such as shares of a listed REIT. According to data from the National Association of Real Estate Investment Trusts (NAREIT) and the National Council of Real Estate Investment Fiduciaries (NCREIF), traded REITS have outperformed direct investments in real estate by 5.25% annually, but have done so with over five times the volatility as measured by standard deviation.

The NAREIT index is an index of publicly traded REITs. The NCREIF index reflects unleveraged returns of investment grade properties, before deducting management fees, as reported by institutional investors. Our management believes that an investment in our stock is more like an investment in a pool of properties than an investment in listed REIT stock and that an investment in our stock will

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have less volatility in performance than an investment in listed REIT stock. While the NCREIF index is not a measure of non-traded REIT performance, our management believes that the NCREIF index is an appropriate and accepted index for purposes of evaluating the relative volatility of an investment in our stock as compared to an investment in listed REIT shares. The NCREIF index reflects higher returns than our stockholders are likely to experience because the management fees we pay will reduce returns. You should also keep in mind that, because we are a non-traded REIT, you will not be able to realize appreciation in the value of our portfolio, if any, until we liquidate or list our stock for trading.

There is generally no public market for stock of a non-traded real estate company. If you invest in a non-traded real estate company, it may be difficult for you to sell your stock and if you sell your stock, it may be at a substantial discount. You and your investment advisor can determine whether an investment in a non-traded real estate company is right for you.

Q: What is a REIT?

A: In general, a REIT is a real estate investment trust or corporation that:

•  combines the capital of many investors to acquire real estate;

•  makes distributions to its stockholders of at least 90% of its taxable income for each year; and

•  is designed to eliminate “double taxation” (i.e., taxation of income at both the corporate and stockholder levels).

      REITs can be publicly traded or non-traded.

Q: Why do you intend to acquire industrial properties?

A. According to NCREIF, over the past 10 years, industrial properties have historically tended to be among the top performing segments in real estate compared to investments in retail and office properties on a total return basis.

Q: How will your advisor select potential properties for acquisition?

A: Our advisor will generally seek to acquire real estate located in major metropolitan markets with high historic levels of tenant demand for the type of property being acquired and a scarcity of land for development of new competitive projects. We call this a “market driven” strategy. We will purchase properties based on the decision of our board of directors after an examination and evaluation by our advisor of many factors including but not limited to the functionality of the property, the historical financial performance of the property, current market conditions for leasing space at the property, proposed purchase price, terms and conditions, potential cash flows and potential appreciation of the property.

Q: Where will the properties you acquire be located?

A:  We expect to seek to acquire properties in major metropolitan markets throughout the United States that meet the market criteria described on page 1 of this prospectus. While we do not intend to acquire properties outside of the United States, we are not prevented by our charter from doing so.

Q: How does your “market driven” strategy compare to a “tenant driven” strategy?

A: A “market driven” strategy focuses on acquiring properties in locations with historically high levels of tenant demand for the type of property being acquired. A “tenant driven” strategy focuses on acquiring a property based generally on the strength of a single tenant occupying all or most of a

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property. We believe investing in strong markets with a diversified tenant base mitigates the vacancy risk associated with the expiration of leases in single tenant properties and properties with a small number of tenants.

Q: Why do you intend to own properties with no permanent financing?

A:  We believe it is important for most investors to hold the “core” portion of their real estate holdings in all-cash properties with no permanent financing. Owning properties all-cash virtually eliminates the risk of foreclosure, reduces the risk associated with tenant vacancies during uncertain economic times and essentially eliminates the risk of rising interest rates. Rising interest rates can cause a reduction or elimination of cash flows generated by real estate owned with debt and can also lead to property foreclosures resulting from an inability to refinance or pay off loans when due.

Q: Will you use temporary acquisition debt financing to purchase properties?

A:  During the offering period, we may use temporary debt financing to facilitate our acquisitions of properties in anticipation of receipt of offering proceeds. We do not have firm commitments for financing from any financial institutions or other lenders. We will endeavor to repay any temporary acquisition debt financing promptly upon receipt of proceeds in this offering. To the extent sufficient proceeds from this offering are unavailable to repay such debt financing within a reasonable time as determined by our board of directors, we will endeavor to sell properties or raise additional equity capital to repay such debt so that we will own our properties all-cash with no permanent financing.

Q:  For what other purposes will you use debt financing?

A:  We intend to incur indebtedness for working capital requirements, tenant improvements, capital improvements, leasing commissions and to make distributions including but not limited to those necessary in order to maintain our qualification as a REIT for federal income tax purposes. We will endeavor to incur such indebtedness on an unsecured basis but we may secure borrowing with some or all of our portfolio of properties if a majority of our independent directors determine that it is in the best interests of us and our stockholders.

Q: How will you own properties?

A: We plan to own substantially all of our properties and conduct our operations through an operating partnership called Cornerstone Operating Partnership, L.P. We are the sole general partner of the operating partnership. We will own our properties through an operating partnership in order to be organized as an “UPREIT”.

Q: What is an “UPREIT” and why are you organized as an UPREIT?

A:

UPREIT stands for “Umbrella Partnership Real Estate Investment Trust.” We plan to conduct substantially all of our real estate operations in an UPREIT structure through our operating partnership as discussed above. We use this structure because of the potential tax benefits to sellers of real estate.

A sale of property directly to us in exchange for stock is generally a taxable transaction to the selling property owner. In an UPREIT structure, a seller of a property who desires to defer taxable gain on the sale of his property to us may transfer the property to our operating partnership in exchange for partnership units on a tax-deferred basis. This allows the seller to defer taxation on any taxable gain the seller may otherwise incur until the seller either exchanges the seller’s operating partnership units for our stock or sells or redeems the seller’s operating partnership units. This structure may give us an

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advantage in acquiring desired properties from persons who may not otherwise sell their properties because of unfavorable tax results to them resulting from such property sale.

Q: Will you own properties through joint ventures?

A:  We may own properties through joint ventures. This is one of the ways we may diversify the portfolio of properties we own in terms of geographic region, property type and tenant industry group. Joint ventures will also allow us to acquire an interest in a property without requiring that we fund the entire purchase price.

Q: How long do you expect to hold properties prior to sale?

A:  Cornerstone-related entities have historically held properties an average of approximately 4.4 years, as reflected on page P-9 of this prospectus. We may hold properties for a longer or shorter period of time than this historic average. Prior properties were purchased, owned and operated during different economic cycles. Past holding periods are no indication of the length of time which we may hold our properties. Our ability to sell our properties may be limited by our need to avoid a 100% penalty tax that is imposed on gain recognized by a REIT from the sale of property characterized as dealer property. In order to ensure that we avoid such characterization, we may be required to hold our properties for a minimum period of time, generally four years.

Q: Have prior funds sponsored by your affiliates generated capital gains to investors?

A: Yes. Based upon Cornerstone-related entities’ historical sales of properties as shown on page P-9 of this prospectus, the average annualized profits from property sales were 7.7% per year in addition to cash flows from rental operations. Prior properties were purchased, owned and operated during different economic cycles. Past performance of these properties is no indication of our future results.

Q: What conflicts of interest will your advisor face?

A: Our advisor and its affiliates are not prohibited from engaging in business activities that may be similar to our operations. Conflicts of interests exist among us, our advisor and its affiliates, principally due to the following:

•  our advisor must determine which investment opportunities to recommend to us or one of their other programs or joint ventures;

•  our advisor or its affiliates may receive higher compensation by providing an investment opportunity to an entity other than us;

•  our advisor may structure the terms of joint ventures between us and other programs sponsored by our advisor or its affiliates without arm’s-length negotiation;

•  our advisor and its affiliates must allocate their time between us and other real estate programs and business activities in which they are involved;

•  our advisor and its affiliates will receive fees in connection with transactions involving the purchase, management and sale of our properties regardless of the profitability of the property acquired or the services provided to us;

•  our advisor may elect to provide property management or leasing services for some or all of our properties or retain an affiliate to manage or lease some or all of our properties; and

•  our advisor and its affiliates will receive fees and other compensation in connection with this and other investment offerings.

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We discuss these specific conflicts of interest, as well as others arising from these relationships, under “Risk Factors — Risks Related to Conflicts of Interest” and under “Conflicts of Interest.”

Q: What fees and reimbursements will your advisor and its affiliates receive in connection with this offering?

A: We will incur substantial fees and expenses in our organization and offering stage, our acquisition and operating stage and our property disposition stage. In most cases, these fees and expenses will be paid to our advisor or its affiliates, including our dealer manager. These fees, which are discussed in detail in the “Management — Management Compensation” section of this prospectus, are summarized below.

      Offering Stage

•  Sales commissions (payable to our dealer manager) up to 7% of gross offering proceeds from our primary offering, some or all of which may be re-allowed to participating brokers.

•  Dealer manager fees (payable to our dealer manager) up to 3% of gross offering proceeds from our primary offering, some or all of which may be re-allowed to participating brokers.

•  A due diligence expense allowance (payable to the dealer manager) of up to 0.5% of the gross proceeds from our primary offering for bona fide due diligence expenses, some or all of which may be re-allowed to participating brokers for bona fide due diligence expenses.

•  Reimbursements to our advisor or its affiliates for organization and offering expenses expected to average between 2% and 3% of gross offering proceeds, but which could be as much as 5%.

      Acquisition and Operating Stage

•  Property acquisition fees (payable to our advisor or its affiliates) equal to 2% of gross offering proceeds from our primary offering.

•  Reimbursement of acquisition expenses to our advisor and its affiliates.

•  Monthly asset management fees (payable to our advisor) equal to one-twelfth of 1% of the book values of our assets invested, directly or indirectly, in real estate before non-cash reserves, plus direct and indirect costs and expenses incurred by our advisor in providing asset management services.

•  Operating expenses including our advisor’s direct and indirect cost of providing administrative services will be reimbursed to our advisor.

      Listing/ Liquidation Stage

•  Property disposition fees (payable to our advisor or its affiliates), if our advisor or its affiliates perform substantial services in connection with property sales, up to 3% of the price of the properties sold.

•  After stockholders have received cumulative distributions equal to $8 per share (less any returns of capital) plus cumulative, non-compounded annual returns on net invested capital, our advisor will be paid a subordinated participation in net sale proceeds ranging from a low of 5% of net sales provided investors have earned annualized returns of 6% to a high of 15% of net sales proceeds if investors have earned annualized returns of 10% or more.

•  Upon termination of the advisory agreement, our advisor will receive the subordinated performance fee due upon termination. This fee ranges from a low of 5% of the amount by which the sum of the net appraised value of our assets on the date the advisory agreement is terminated plus total dividends (other than stock dividends) paid prior to termination of the advisory agreement exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by

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which the sum of the net appraised value of our assets plus all prior dividends (other than stock dividends) exceeds the amount of invested capital plus annualized returns of 10% or more.

•

In the event we list our stock for trading, our advisor will receive a subordinated incentive listing fee instead of a subordinated participation in net sales proceeds. This fee ranges from a low of 5% of the amount by which the market value of our common stock plus all prior dividends (other than stock dividends) exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by which the sum of the market value of our stock plus all prior dividends (other than stock dividends) exceeds the amount of invested capital plus annualized returns of 10% or more.

See “Management Compensation” and “Plan of Distribution” for a more detailed description of the fees and expenses payable to our advisor, our dealer manager and their affiliates.

Q: If I buy shares of stock in this offering, will I receive distributions and how often?

A: We intend to make distributions at least quarterly, if not more often. Our board of directors will determine the timing of distributions. The amount and timing of distributions we may make is uncertain.

Q: How will you determine the amount of distributions to be made?

A:

The amount of distributions that we make will be determined by our board of directors. In order to remain qualified as a REIT, we generally must make distributions of at least 90% of our taxable income for each year. The amount of distributions we are required to make may exceed our cash available for distribution and we may need to borrow money or sell real estate assets to fund distributions. Distributions made in excess of net income will constitute a return of capital to stockholders. Our board of directors may authorize distributions in excess of those required for us to maintain our REIT status.

In determining the amount and timing of distributions, our board of directors will consider a number of factors, including earnings, cash flow, funds available from our operations, general financial condition, future prospects, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code and other factors. In order to keep the amount and timing of distributions relatively stable, we may make distributions that may not be reflective of the actual income we earn.

Q: May I reinvest my distributions in additional shares of your stock?

A:  Yes. As part of this offering we have registered a number of shares of stock to be sold under our distribution reinvestment plan. During our primary offering, the price for shares in our distribution reinvestment plan will be $7.20 per share. The offering price for shares in our distribution reinvestment plan may increase after the closing of our primary offering. You will be taxed on distributions you reinvest in our stock even though no cash will be distributed to you. You will not be charged sales commissions for shares you purchase under our distribution reinvestment plan. We may elect to deny your participation in the dividend reinvestment plan if you reside in a jurisdiction or foreign country where, in our judgment, the burden or expense of compliance with applicable securities laws makes your participation impracticable or inadvisable. We may terminate the offering of stock pursuant to our distribution reinvestment plan at any time upon 10 days notice to stockholders. Purchase of our stock under our distribution reinvestment plan may effectively lower the total return on your investment with us.

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Q: Will you have a stock repurchase program?

A:  Yes, we intend to adopt a stock repurchase program. The amount that we will generally pay to repurchase your stock will depend upon the length of time you have held your stock as set forth in the following table:

Number Years Held	Redemption Price
Less than 1		No Redemption Allowed
1 or more but less than 2		90% of your purchase price
2 or more but less than 3		95% of your purchase price
Less than 3 in the event of death		100% of your purchase price
3 or more but less than 5		100% of your purchase price
5 or more		Estimated liquidation value

The stock repurchase price is subject to adjustment as determined from time to time by our board of directors. At no time will the stock repurchase price exceed the price at which we are offering our common stock for sale. The stock repurchase price for shares received as part of the special 10% stock distribution will be the same as the stock repurchase price for the shares purchased by an investor. You will not be charged any fees for participating in our stock repurchase program.

We have no obligation to repurchase your stock. Our stock repurchase program will have limitations and restrictions and may be cancelled. We intend to redeem shares using proceeds from our distribution reinvestment plan but we may use other available cash to repurchase the shares of a deceased shareholder. Our board of directors may modify our stock repurchase program so that we can also redeem stock using the proceeds from the sale of our properties or other sources. During this offering and each of the first five years following the closing of this offering, we do not intend to redeem more than the lesser of (i) the number of shares that could be redeemed using the proceeds from our distribution reinvestment plan or (ii) 5% of the number of shares outstanding at the end of the prior calendar year. Beginning five years after termination of this offering, the number of shares that we redeem under the stock repurchase program is not expected to exceed 10% of the number of shares outstanding at the end of the previous year. In most instances, requests for redemption will be processed on a monthly basis. If we do not redeem all the shares presented, we will attempt to honor redemption requests in future months on a prorated basis. We reserve the right to amend or terminate our stock repurchase program upon thirty days prior written notice to our stockholders. See “Description of Stock — Proposed Stock Repurchase Program.”

Q: What is your term or expected life?

A: We do not have a fixed term. Within five years from the closing of this offering, our board of directors will take one or more of the following actions to provide enhanced liquidity for our stockholders:

            •  modify our stock repurchase program to allow us to use proceeds from the sale of our properties to redeem shares;

            •  seek stockholder approval to begin an orderly liquidation of our assets and distribute the available proceeds of such sales to our stockholders;

            •  list our stock for trading on a national securities exchange or the Nasdaq National Market; or

            •  seek stockholder approval of another liquidity event such as a sale of our assets or a merger with another entity.

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Q: How will I be notified of how my investment is doing?

A: We will provide you with periodic updates on the performance of your investment in our stock, including:

            •  regular distribution reports;

            •  annual reports;

            •  quarterly financial reports;

            •  annual IRS Form 1099-DIV; and

            •  supplements to the prospectus.

We will provide this information to you via one or more of the following methods, in our discretion and with your consent, if necessary:

            •  U.S. mail or other courier;

            •  facsimile;

            •  electronic delivery; and

            •  posting on our affiliated website at www.cornerstonerealtyfunds.com.

Q: When will I get my detailed annual tax information?

A: We intend to mail your Form 1099-DIV tax information by January 31 of each year.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

      Some of the information in this prospectus may contain forward-looking statements. Such statements include, in particular, statements about our plans, strategies and prospects. You can generally identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue” or other similar words. Although we believe that our plans, intentions and expectations reflected in the forward-looking statements are reasonable, you should not rely on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control.

      These forward-looking statements are subject to various risks and uncertainties, including those discussed below under “Risk Factors,” that could cause our actual results to differ materially from those projected in any forward-looking statement we make. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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RISK FACTORS

      An investment in our stock involves various risks and uncertainties. You should carefully consider the following risk factors in conjunction with the other information contained in this prospectus before purchasing our stock. The risks discussed in this prospectus can adversely affect our business, operating results, prospects and financial condition. This could cause the value of our stock to decline and could cause you to lose all or part of your investment. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to our business, operating results, prospects and financial condition. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Investment Risks

Our lack of prior operating history makes it difficult for you to evaluate this investment.

      We have no operating history. The past performance of other real estate investment programs sponsored by affiliates of our advisor may not be indicative of the performance we will achieve. We were formed on October 22, 2004 in order to invest primarily in investment real estate. We have no income, cash flow, funds from operations or funds from which we can make distributions to you. We have not acquired any properties which you can evaluate in making a decision to purchase our stock. We may not be able to conduct business as we intend to. This lack of operating history increases the risk and uncertainty you face in making an investment in our stock.

This is a blind pool offering, therefore, you will not have the opportunity to evaluate our investments before we make them and we may make real estate investments that would have changed your decision as to whether or not to invest in our stock.

      Because we have not yet acquired or identified any investments that we may make, we are not able to provide you with information to evaluate our investments prior to acquisition. We will seek to invest substantially all of the offering proceeds available for investment, after the payment of fees and expenses, in the acquisition of real estate including multi-tenant industrial real estate. We have established criteria for evaluating multi-tenant industrial real estate. However, you will be unable to evaluate the transaction terms, location, and financial or operational data concerning the properties before we invest in them. Except for the investments described in one or more supplements to this prospectus, you will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments. You will be relying entirely on the ability of our advisor to identify properties and propose transactions and on our board of directors to oversee and approve such investments.

Because there is no public trading market for our stock it will be difficult for you to sell your stock. If you do sell your stock, you will likely sell it at a substantial discount.

      There is no current public market for our stock and there is no assurance that a public market will ever exist for our stock. Our charter contains restrictions on the ownership and transfer of our stock, and these restrictions may inhibit your ability to sell your stock. Our charter prevents any one person from owning more than 9.8% in number of shares or value, whichever is more restrictive, of the outstanding shares of any class or series of our stock unless exempted by our board of directors. Our charter also limits your ability to transfer your stock to prospective stockholders unless (i) they meet suitability standards regarding income or net worth, which are described under “Suitability Standards” and (ii) the transfer complies with minimum purchase requirements, which are described at “Prospectus Summary — The Offering.” We plan to adopt a stock repurchase program, but it will be limited in terms of the number of shares of stock which may be redeemed annually. Our board of directors may also limit, suspend or terminate our stock repurchase program at any time.

      It may be difficult for you to sell your stock promptly or at all. If you are able to sell shares of stock, you may only be able to sell them at a substantial discount from the price you paid. This may be the result, in part, of the fact that the amount of funds available for investment is expected to be reduced by

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sales commissions, dealer manager fees, organization and offering expenses, and acquisition fees and expenses. If our offering expenses are higher than we anticipate, we will have a smaller amount available for investment. Unless our aggregate investments increase in value to compensate for these up-front fees and expenses, it is unlikely that you will be able to sell your stock, whether pursuant to our stock repurchase program or otherwise, without incurring a substantial loss. We cannot assure you that your stock will ever appreciate in value to equal the price you paid for your stock. It is also likely that your stock would not be accepted as the primary collateral for a loan. You should consider our stock as an illiquid investment, and you must be prepared to hold your stock for an indefinite period of time. Please see “Description of Stock — Restriction on Ownership of Stock” herein for a more complete discussion on certain restrictions regarding your ability to transfer your stock.

Competition with third parties for properties and other investments may result in our paying higher prices for properties which could reduce our profitability and the return on your investment.

      We compete with many other entities engaged in real estate investment activities, including individuals, corporations, banks, insurance companies, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities, many of which have greater resources than we do. Some of these investors may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase. Any such increase would result in increased demand for these assets and increased prices. If competitive pressures cause us to pay higher prices for properties, our ultimate profitability may be reduced and the value of our properties may not appreciate or may decrease significantly below the amount paid for such properties. This may cause you to experience a lower return on your investment.

If we are unable to find or experience delays in finding suitable investments, we may experience a delay in the commencement of distributions and a lower rate of return to investors.

      Our ability to achieve our investment objectives and to make distributions depends upon the performance of our advisor in the acquisition and operation of our investments and upon the performance of property managers and leasing agents in the management of our properties and identification of prospective tenants. We may be delayed in making investments in properties due to delays in the sale of our stock, delays in negotiating or obtaining the necessary purchase documentation for properties, delays in locating suitable investments or other factors. We cannot be sure that our advisor will be successful in obtaining suitable investments on financially attractive terms or that our investment objectives will be achieved. We may also make other real estate investments such as investments in publicly traded REITs, mortgage funds and other entities which make real estate investments. Until we make real estate investments, we will hold the proceeds from this offering in an interest-bearing account or invest the proceeds in short-term, investment-grade securities. We expect the rates of return on these short-term investments to be substantially less than the returns we make on real estate investments. If we are unable to invest the proceeds from this offering in properties or other real estate investments for an extended period of time, distributions to you may be delayed and may be lower and the value of your investment could be reduced.

If we do not raise substantial funds, we will be limited in the number and type of investments we may make, and the value of your investment in us will fluctuate with the performance of the specific properties we acquire.

      This offering is being made on a “best efforts” basis and no individual, firm or corporation has agreed to purchase any of our stock. The amount of proceeds we raise in this offering may be substantially less than the amount we would need to achieve a broadly diversified property portfolio. If we are unable to raise substantially more than the minimum offering amount, we will make fewer investments resulting in less diversification in terms of the number of investments owned and the geographic regions in which our investments are located. In that case, the likelihood that any single property’s performance would

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materially reduce our overall profitability will increase. We are not limited in the number or size of our investments or the percentage of net proceeds we may dedicate to a single investment. In addition, any inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, and our net income and the distributions we make to stockholders would be reduced.

The cash distributions you receive may be less frequent or lower in amount than you expect.

      We expect to make distributions to our stockholders quarterly, if not more frequently. All expenses we incur in our operations are deducted from cash funds generated by operations prior to computing the amount of cash available to be paid as distributions to our stockholders. Our directors will determine the amount and timing of distributions. Our directors will consider all relevant factors, including the amount of cash available for distribution, capital expenditure and reserve requirements and general operational requirements. We cannot assure you how long it may take to generate sufficient available cash flow to make distributions or that sufficient cash will be available to make distributions to you. We may borrow funds to enable us to make distributions. With no prior operations, we cannot predict the amount of distributions you may receive. We may be unable to pay or maintain cash distributions or increase distributions over time.

If we borrow money to meet the REIT minimum distribution requirement or for other working capital needs, our expenses will increase, our net income will be reduced by the amount of interest we pay on the money we borrow and we will be obligated to repay the money we borrow from future earnings or by selling assets, which will decrease future distributions to stockholders.

      If we fail for any reason to distribute at least 90% of our REIT taxable income, then we would not qualify for the favorable tax treatment accorded to REITs. It is possible that 90% of our income would exceed the cash we have available for distributions due to, among other things, differences in timing between the actual receipt of income and actual payment of deductible expenses and the inclusion/deduction of such income/expenses when determining our taxable income, nondeductible capital expenditures, the creation of reserves, the use of cash to purchase stock under our stock repurchase program, and required debt amortization payments. We may decide to borrow funds in order to meet the REIT minimum distribution requirements even if our management believes that the then prevailing market conditions generally are not favorable for such borrowings or that such borrowings would not be advisable in the absence of such tax considerations. Distributions made in excess of net income will constitute a return of capital to stockholders. See “Investment Objectives and Acquisition Policies — Borrowing Policies” and “Federal Income Tax Considerations — Annual Distribution Requirements.”

The inability of our advisor to retain or obtain key personnel, property managers and leasing agents could delay or hinder implementation of our investment strategies, which could impair our ability to make distributions and could reduce the value of your investment.

      Our success depends to a significant degree upon the contributions of Terry G. Roussel, the President and Chief Executive Officer of our advisor. Our advisor does not have an employment agreement with Mr. Roussel. If Mr. Roussel was to cease his affiliation with our advisor, our advisor may be unable to find a suitable replacement, and our operating results could suffer. We believe that our future success depends, in large part, upon our advisor’s, property managers’ and leasing agents’ ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for highly skilled personnel is intense, and our advisor and any property managers we retain may be unsuccessful in attracting and retaining such skilled personnel. If we lose or are unable to obtain the services of highly skilled personnel, property managers or leasing agents, our ability to implement our investment strategies could be delayed or hindered, and the value of your investment may decline.

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Risks Related to Conflicts of Interest

Our advisor will face conflicts of interest relating to the purchase and leasing of properties, and such conflicts may not be resolved in our favor, which could limit our investment opportunities, impair our ability to make distributions and reduce the value of your investment.

      We rely on our advisor to identify suitable investment opportunities. We may be buying properties at the same time as other entities that are affiliated with or sponsored by our advisor. Other programs sponsored by our advisor or its affiliates also rely on our advisor for investment opportunities. Many investment opportunities would be suitable for us as well as other programs. Our advisor could direct attractive investment opportunities or tenants to other entities. Such events could result in our investing in properties that provide less attractive returns, thus reducing the level of dividends which we may be able to pay to you and the value of your investment. See “Conflicts of Interest.”

If we acquire properties from affiliates of our advisor, the price may be higher than we would pay if the transaction was the result of arm’s-length negotiations.

      The prices we pay to affiliates of our advisor for our properties will be equal to the prices paid by them, plus the costs incurred by them relating to the acquisition and financing of the properties or if the price to us is in excess of such cost, substantial justification for such excess will exist and such excess will be reasonable and consistent with current market conditions as determined by a majority of our independent directors. Substantial justification for a higher price could result from improvements to a property by the affiliate of our advisor or increases in market value of the property during the period of time the property is owned by the affiliates of our advisor as evidenced by an appraisal of the property. These prices will not be the subject of arm’s-length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated in an arm’s-length transaction. Even though we will use an independent third party appraiser to determine fair market value when acquiring properties from our advisor and its affiliates, we may pay more for particular properties than we would have in an arm’s-length transaction, which would reduce our cash available for investment in other properties or distribution to our stockholders.

We may purchase properties from persons with whom our advisor or its affiliates have prior business relationships and our advisor’s interest in preserving its relationship with these persons could result in us paying a higher price for the properties than we would otherwise pay.

      We may have the opportunity to purchase properties from third parties including affiliates of our independent directors who have prior business relationships with our advisor or its affiliates. If we purchase properties from such third parties, our advisor may experience a conflict between our interests and its interest in preserving any ongoing business relationship with these sellers.

Our advisor will face conflicts of interest relating to joint ventures that we may form with affiliates of our advisor, which conflicts could result in a disproportionate benefit to the other venture partners at our expense.

      We may enter into joint venture agreements with third parties (including entities that are affiliated with our advisor or our independent directors) for the acquisition or improvement of properties. Our advisor may have conflicts of interest in determining which program should enter into any particular joint venture agreement. The co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. In addition, our advisor may face a conflict in structuring the terms of the relationship between our interests and the interest of the affiliated co-venturer and in managing the joint venture. Since our advisor and its affiliates will control both the affiliated co-venturer and, to a certain extent, us, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. Co-venturers may thus benefit to our and your detriment.

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Our advisor and its affiliates receive commissions, fees and other compensation based upon the sale of our stock, our property acquisitions, the property we own and the sale of our properties and therefore our advisor and its affiliates may make recommendations to us that we buy, hold or sell property in order to increase their compensation. Our advisor will have considerable discretion with respect to the terms and timing of our acquisition, disposition and leasing transactions.

      Our advisor and its affiliates receive commissions, fees and other compensation based upon the sale of our stock and based on our investments. Therefore, our advisor may recommend that we purchase properties that generate fees for our advisor, but are not necessarily the most suitable investment for our portfolio. In some instances our advisor and its affiliates may benefit by us retaining ownership of our assets, while you may be better served by sale or disposition. In other instances they may benefit by us selling the properties which may entitle our advisor to disposition fees and possible success-based sales fees. In addition, our advisor’s ability to receive asset management fees and reimbursements depends on our continued investment in properties and in other assets which generate fees to them. Therefore, the interest of our advisor and its affiliates in receiving fees may conflict with our interests. See “Management Compensation.”

Our advisor and its affiliates, including our officers and some of our directors, will face conflicts of interest caused by compensation arrangements with us and other advisor-sponsored programs, which could result in actions that are not in the long-term best interests of our stockholders.

      Our advisor and its affiliates will receive substantial fees from us. These fees could influence our advisor’s advice to us, as well as the judgment of the affiliates of our advisor who serve as our officers or directors. Among other matters, the compensation arrangements could affect their judgment with respect to:

•  property acquisitions from other advisor-sponsored programs, which might entitle our advisor to disposition fees and possible success-based sale fees in connection with its services for the seller;

•  whether and when we seek to list our common stock on a national securities exchange or the Nasdaq National Market, which listing could entitle our advisor to a success-based listing fee but could also adversely affect its sales efforts for other programs if the price at which our stock trades is lower than the price at which we offered stock to the public; and

•  whether and when we seek to sell the company or its assets, which sale could entitle our advisor to success-based fees but could also adversely affect its sales efforts for other programs if the sales price for the company or its assets resulted in proceeds less than the amount needed to preserve our stockholders’ capital.

      Considerations relating to their compensation from other programs could result in decisions that are not in the best interests of our stockholders, which could hurt our ability to make distributions to you or result in a decline in the value of your investment.

If the competing demands for the time of our advisor, its affiliates and our officers result in them spending insufficient time on our business, we may miss investment opportunities or have less efficient operations which could reduce our profitability and result in lower distributions to you.

      We do not have any employees. We rely on the employees of our advisor and its affiliates for the day-to-day operation of our business. We estimate that over the life of the company, our advisor and its affiliates will dedicate, on average, less than half of their time to our operations. The amount of time that our advisor and its affiliates spend on our business will vary from time to time and is expected to be more while we are raising money and acquiring properties. Our advisor and its affiliates, including our officers, have interests in other programs and engage in other business activities. As a result, they will have conflicts of interest in allocating their time between us and other programs and activities in which they are involved. Because these persons have competing interests on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and fewer resources to our

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business than are necessary or appropriate to manage our business. We expect that as our real estate activities expand, our advisor will attempt to hire additional employees who would devote substantially all of their time to our business. There is no assurance that our advisor will devote adequate time to our business. If our advisor suffers or is distracted by adverse financial or operational problems in connection with its operations unrelated to us, it may allocate less time and resources to our operations. If any of these things occur, the returns on our investments, our ability to make distributions to stockholders and the value of your investment may suffer.

Our officers and some of our directors face conflicts of interest related to the positions they hold with our advisor and its affiliates which could hinder our ability to successfully implement our business strategy and to generate returns to our stockholders.

      Our executive officers and some of our directors are also officers and directors of our advisor, our dealer manager and other affiliated entities. As a result, they owe fiduciary duties to these various entities and their stockholders and members, which fiduciary duties may from time to time conflict with the fiduciary duties that they owe to us and our stockholders. Their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our business strategy and our investment, property management and leasing opportunities. If we do not successfully implement our business strategy, we may be unable to generate cash needed to make distributions to you and to maintain or increase the value of our assets. See “Conflicts of Interest.”

Our board’s possible loyalties to existing advisor-sponsored programs (and possibly to future advisor-sponsored programs) could result in our board approving transactions which are not in our best interest and which reduce our net income and lower our distributions to stockholders.

      Some of our directors are also directors of our advisor which is an affiliate of the managing member of another affiliate-sponsored program. The loyalties of those directors to the other affiliate-sponsored program may influence the judgment of our board when considering issues for us that may affect the other affiliate-sponsored program, such as the following:

•  We could enter into transactions with the other program, such as property sales or acquisitions, joint ventures or financing arrangements. Decisions of our board regarding the terms of those transactions may be influenced by our board’s loyalties to the other program.

•  A decision of our board regarding the timing of a debt or equity offering could be influenced by concerns that the offering would compete with an offering of the other program.

•  A decision of our board regarding the timing of property sales could be influenced by concerns that the sales would compete with those of the other program.

•  We could also face similar conflicts and some additional conflicts if our advisor or its affiliates sponsor additional REITs, assuming some our directors are also directors of the additional REITs.

•  Our independent directors must evaluate the performance of our advisor with respect to whether our advisor is presenting to us our fair share of investment opportunities. If our advisor is not presenting a sufficient number of investment opportunities to us because it is presenting many opportunities to other advisor-sponsored entities or if our advisor is giving preferential treatment to other advisor-sponsored entities in this regard, our independent directors may not be well suited to enforce our rights under the terms of the advisory agreement or to seek a new advisor.

If our advisor is unable to adequately fund our offering and organizational activities, we may sell fewer shares in this offering, we may be unable to acquire a diversified portfolio of properties, our operating expenses may be a larger percentage of our revenue and our net income may be lower.

      Our advisor is newly formed, has limited capitalization, has incurred losses since its inception and is continuing to incur losses. Our advisor must raise funds through the sale of its own debt or equity securities, or obtain financial support from its affiliates or its sole member, to obtain the cash necessary to

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provide these advances. Our advisor’s sole member is also dependent on raising funds to provide financial support to our advisor. There can be no assurance as to the amount or timing of our advisor’s receipt of funds. If our advisor’s financial circumstances reduces the amount of funds available to us for offering and organizational activities, we may not be able to raise as much money in this offering. Cornerstone Industrial Properties, LLC, the sole member of our advisor, has limited capitalization, has incurred significant losses since its inception and is continuing to incur significant losses.

There is no separate counsel for our affiliates and us, which could result in conflicts of interest and actions not in our stockholders’ best interests.

      Preston Gates & Ellis LLP is counsel both to us and to our advisor and its affiliates, including Pacific Cornerstone Capital, Inc. As discussed above, there is a possibility that the interests of the various parties may conflict. If we do not obtain separate counsel when our interests conflict with those of our advisor and its affiliates, our counsel’s loyalties to our advisor and its affiliates could interfere with its independent professional judgment in considering alternatives that we should pursue, which could result in our pursuing courses of action that are not in our stockholders’ best interests.

Risks Related to This Offering and Our Corporate Structure

A limit on the percentage of our securities a person may own may discourage a takeover or business combination, which could prevent our stockholders from realizing a premium price for their stock.

      In order for us to qualify as a REIT, no more than 50% of our outstanding stock may be beneficially owned, directly or indirectly, by five or fewer individuals (including certain types of entities) at any time during the last half of each taxable year. To assure that we do not fail to qualify as a REIT under this test, our charter restricts direct or indirect ownership by one person or entity to no more than 9.8% in number of shares or value, whichever is more restrictive, of the outstanding shares of any class or series of our stock unless exempted by our board of directors. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to our stockholders.

Our charter permits our board of directors to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party from acquiring us in a manner that could result in a premium price to our stockholders.

      Our board of directors may increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of any such stock. Our board of directors could authorize the issuance of preferred stock with terms and conditions that could have priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.

The payment of the subordinated performance fee due upon termination, and the purchase of interests in the operating partnership held by our advisor and its affiliates as required in our advisory agreement, may discourage a takeover attempt that could have resulted in a premium price to our stockholders.

      In the event of a merger in which we are not the surviving entity, and pursuant to which our advisory agreement is terminated, our advisor and its affiliates may require that we pay the subordinated performance fee due upon termination, and that we purchase all or a portion of the operating partnership units they hold at any time thereafter for cash, or our stock, as determined by the seller. The subordinated performance fee due upon termination ranges from a low of 5% if the sum of the net appraised value of

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our assets on the date the advisory agreement is terminated plus total dividends (other than stock dividends) paid prior to termination of the advisory agreement exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% if the sum of the net appraised value of our assets plus all prior dividends (other than stock dividends) exceeds the amount of invested capital plus annualized returns of 10% or more. See “Management — The Advisor and the Advisory Agreement — Removal of the Advisor.” This deterrence may limit the opportunity for stockholders to receive a premium for their stock that might otherwise exist if an investor attempted to acquire us through a merger.

If you purchase our stock following payment of the special 10% stock distribution, your interest in us will be diluted.

      Our board of directors intends to authorize a special 10% stock distribution to be paid to the stockholders of record on the date that we raise the first $125,000,000 in this offering. The investors who purchase our stock on or before the record date for this special 10% stock distribution will receive one additional share of stock for every 10 shares of stock they own as of that date. If we pay this special 10% stock distribution on the first $125,000,000 raised in this offering, we will issue 1,562,500 shares for which we will receive no consideration. In the event we sell all of the shares we are offering in our primary offering, and assuming we sell no shares pursuant to our distribution reinvestment program, investors who do not receive the special 10% stock distribution will experience dilution of approximately $0.27 per share or 3.4% of their investment. In the event we sell only one half of the shares we are offering in our primary offering, investors who do not receive the special 10% stock dividend will experience dilution of approximately $0.53 per share or 6.6% of their investment.

Your interest in us may be diluted if we issue additional stock.

      Our stockholders do not have preemptive rights to any stock we issue in the future. Therefore, in the event that we (1) sell stock in the future, including stock issued pursuant to our distribution reinvestment plan, (2) sell securities that are convertible into stock, (3) issue stock in a private offering, (4) issue stock upon the exercise of the options granted to our independent directors, employees of our advisor or others, or (5) issue stock to sellers of properties acquired by us in connection with an exchange of limited partnership interests in our operating partnership, investors purchasing stock in this offering will experience dilution of their percentage ownership in us. Depending on the terms of such transactions, most notably the price per share, which may be less than the price paid per share in this offering, and the value of our properties, investors in this offering might also experience a dilution in the book value per share of their stock.

Your interest in us may be diluted if we acquire properties for units in our operating partnership.

      Holders of units of our operating partnership will receive distributions per unit in the same amount as the distributions we pay per share to our stockholders and will have the right to exchange their units of our operating partnership for shares of our stock. In the event we issue units in our operating partnership in exchange for properties, investors purchasing stock in this offering will experience dilution in their percentage ownership interest in us. Depending on the terms of such transactions, most notably the price per unit, which may be less than the price paid per share in this offering, the value of our properties and the value of the properties we acquire through the issuance of units of limited partnership interests in our operating partnership, investors in this offering might also experience a dilution in the book value per share of their stock.

Although we will not currently be afforded the protection of the Maryland General Corporation Law relating to business combinations, our board of directors could opt in to these provisions of Maryland law in the future, which may discourage others from trying to acquire control of us and may prevent our stockholders from receiving a premium price for their stock in connection with a business combination.

      Under Maryland law, “business combinations” between a Maryland corporation and certain interested stockholders or an affiliates of interested stockholders are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations

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include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. Should our board opt in to the business combination statutes, it may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. For more information about the business combination provisions of Maryland law, see “Description of Securities — Business Combinations.”

If we sell substantially less than all of the shares we are offering, the costs we incur to comply with the rules of the Securities and Exchange Commission regarding internal control over financial reporting will be a larger percentage of our net income and will reduce the return on your investment.

      We expect to incur significant costs in establishing and maintaining adequate internal control over our financial reporting for the company and that our management will spend a significant amount of time assessing the effectiveness of our internal control over financial reporting. We do not anticipate that these costs or the amount of time our management will be required to spend will be significantly less if we sell substantially less than all of the shares we are offering.

Your rights as stockholders and our rights to recover claims against our directors, officers, employees and other agents are limited, which could reduce your and our recovery against them if they are liable to us for their conduct.

      Maryland law provides that a director has no liability as a director if he performs his duties in good faith, in a manner he reasonably believes to be in the best interests of the company and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter also provides that we will generally indemnify our directors, our officers, our advisor and its affiliates and their respective officers, directors, managers and employees for losses they may incur by reason of their service in those capacities unless:

•  their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty;

•  they actually received an improper personal benefit in money, property or services; or

•  in the case of any criminal proceeding, they had reasonable cause to believe that the act or omission was unlawful.

      In addition to the above provisions of the Maryland General Corporation Law, our charter provides that in order for a director, an officer, our advisor or its affiliates to receive indemnification, all of the following conditions must be met:

•  our directors, our advisor or its affiliates have determined, in good faith, that the course of conduct that caused the loss or liability was in our best interests;

•  our directors, our officers, our advisor or its affiliates were acting on our behalf or performing services for us;

•  in the case of our independent directors, the liability or loss was not the result of gross negligence or willful misconduct by the party seeking indemnification;

•  in the case of our non-independent directors, our advisor or its affiliates, the liability or loss was not the result of negligence or misconduct by the party seeking indemnification; and

•  the indemnification is recoverable only out of our net assets or the proceeds of insurance and not from the stockholders.

      As a result, you and we may have more limited rights against our directors, officers, employees and other agents than might otherwise exist under common law, which could reduce your and our recovery from such persons if they cause us to incur losses. In addition, we may be obligated to fund the defense costs incurred by our directors (as well as by our officers, employees and agents) in some cases, which would decrease the cash otherwise available to us to make distributions to you.

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You may not be able to sell your stock under the proposed stock repurchase program.

      We will not adopt the proposed stock repurchase program until the completion of this primary offering, which may last until                     , 2007 unless we receive from the SEC an exemption from Rule 102 of Regulation M which prohibits companies from making bids for or purchases of shares of their common stock at the same time as the company is selling its common stock in an offering, and an exemption or no-action position under Rule 13e-4 of the Securities Exchange Act of 1934, as amended which requires that companies comply with certain tender offer rules in connection with the repurchase of their common stock. Our board of directors could choose not to adopt the proposed stock repurchase program or to amend its proposed terms without stockholder approval. Our board would also be free to amend or terminate the program at any time after its adoption. In addition, the proposed stock repurchase program includes numerous restrictions that would limit your ability to sell your stock. See “Description of Stock — Proposed Stock Repurchase Program.”

The offering price was not established on an independent basis and you may be paying more for our stock than its value or the amount you would receive upon liquidation.

      The offering price of our shares of stock bears no relationship to our book or asset value or to any other established criteria for valuing stock. The board of directors considered the following factors in determining the offering price:

•  the offering prices of comparable non-traded REITs; and

•  the recommendation of the dealer manager.

      Because the offering price is not based upon any independent valuation, the value of your investment may be substantially less than what you pay and may not be indicative of the proceeds that you would receive upon liquidation. Further, the offering price may be significantly more than the price at which our shares of stock would trade if they were to be listed on an exchange or actively traded by broker-dealers.

Because the dealer manager is one of our affiliates, you will not have the benefit of an independent review of us or the prospectus customarily undertaken in underwritten offerings.

      The dealer manager, Pacific Cornerstone Capital, Inc., is an affiliate of our advisor and will not make an independent review of us or the offering. Accordingly, you do not have the benefit of an independent review of the terms of this offering. Further, the due diligence investigation of us by the dealer manager cannot be considered to be an independent review and, therefore, may not be as meaningful as a review conducted by an unaffiliated broker-dealer or investment banker.

Payment of fees to our advisor and its affiliates will reduce cash available for investment and distribution.

      Our advisor and its affiliates will perform services for us in connection with the offer and sale of our stock, the selection and acquisition of our properties, and possibly the management and leasing of our properties. They will be paid significant fees for these services, which will reduce the amount of cash available for investment in properties and distribution to stockholders. The fees to be paid to our advisor and its affiliates were not determined on an arm’s-length basis. We cannot assure you that a third-party unaffiliated with our advisor would not be willing to provide such services to us at a lower price. If the maximum offering amount is raised we estimate that 11.7% of gross proceeds, including shares of stock issued pursuant to our distribution reinvestment plan, including estimated acquisition fees of 1.6% of gross proceeds, will be paid to our advisor, its affiliates and third parties for up-front fees and expenses associated with the offer and sale of our stock, a substantial portion of which may be re-allowed to participating broker-dealers. The expenses we incur in connection with the offer and sale of our stock, excluding acquisition fees and expenses, may exceed the amount we expect and could be as high as 15% of gross proceeds. These fees increase the risk that the amount available for payment of distributions to our stockholders upon a liquidation of our portfolio would be less than the purchase price of the shares of stock in this offering. Substantial up-front fees also increase the risk that you will not be able to resell your

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shares of stock at a profit, even if our stock is listed on a national securities exchange or the Nasdaq National Market. See “Management Compensation”.

If we are unable to obtain funding for future capital needs, cash distributions to our stockholders could be reduced and the value of our investments could decline.

      If we need additional capital in the future to improve or maintain our properties or for any other reason, we will have to obtain financing from other sources, such as cash flow from operations, borrowings, property sales or future equity offerings. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both.

Our advisor does not have as strong an economic incentive to avoid losses as do sponsors who have made significant equity investments in the companies they sponsor.

      Terry G. Roussel, an affiliate of our advisor, has invested $1,000 in 125 shares of our stock. As of the date of this prospectus, our advisor and its affiliates have only invested $200,000 in Cornerstone Operating Partnership, L.P. Therefore, if we are successful in raising enough proceeds to be able to reimburse our advisor for our significant organization and offering expenses, our advisor has little exposure to losses in the value of our stock. Without this exposure, our investors may be at a greater risk of loss because our advisor and its affiliates do not have as much to lose from a decrease in the value of our stock as do those sponsors who make more significant equity investments in the companies they sponsor.

General Risks Related to Investments in Real Estate

Economic and regulatory changes that impact the real estate market may reduce our net income and the value of our properties.

      By owning our stock, stockholders will be subjected to the risks associated with owning real estate. The performance of your investment in us is subject to, among other things, risks related to the ownership and operation of real estate, including but not limited to:

•  worsening general or local economic conditions and financial markets could cause lower demand, tenant defaults, and reduced occupancy and rental rates, some or all of which would cause an overall decrease in revenue from rents;

•  increases in competing properties in an area which could require increased concessions to tenants and reduced rental rates; and

•  increases in interest rates or unavailability of permanent mortgage funds which may render the sale of a property difficult or unattractive.

Some or all of the foregoing factors may affect our properties, which would reduce our net income, and our ability to make distributions to our stockholders.

Lease terminations could reduce our revenues from rents and our distributions to our stockholders and cause the value of your investment to decline.

      The success of our investments depends upon the occupancy levels, rental income and operating expenses of our properties and our company. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord and may incur costs in protecting our investment and re-leasing our property. We may be unable to re-lease the property for the rent previously received. We may be unable to sell a property with low occupancy without incurring a loss. These events and others could cause us to reduce the amount of distributions we make to stockholders and the value of your investment to decline.

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Rising expenses at both the property and the company level could reduce our net income and our cash available for distribution to stockholders.

      Our properties will be subject to operating risks common to real estate in general, any or all of which may reduce our net income. If any property is not substantially occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds with respect to that property for operating expenses. The properties will be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses. If we are unable to lease properties on a basis requiring the tenants to pay such expenses, we would be required to pay some or all of those costs which would reduce our income and cash available for distribution to stockholders.

Costs incurred in complying with governmental laws and regulations may reduce our net income and the cash available for distributions.

      Our company and the properties we expect to own are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Federal laws such as the National Environmental Policy Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act, the Federal Clean Air Act, the Toxic Substances Control Act, the Emergency Planning and Community Right to Know Act and the Hazard Communication Act govern such matters as wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials and the remediation of contamination associated with disposals. The properties we acquire will be subject to the Americans with Disabilities Act of 1990 which generally requires that certain types of buildings and services be made accessible and available to people with disabilities. These laws may require us to make modifications to our properties. Some of these laws and regulations impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. Compliance with these laws and any new or more stringent laws or regulations may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. In addition, there are various federal, state and local fire, health, life-safety and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance.

      Our properties may be affected by our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties. The presence of hazardous substances, or the failure to properly remediate these substances, may make it difficult or impossible to sell or rent such property. Any material expenditures, fines, or damages we must pay will reduce our ability to make distributions and may reduce the value of your investment.

Discovery of environmentally hazardous conditions may reduce our cash available for distribution to our stockholders.

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

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property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could be substantial and reduce our ability to make distributions and the value of your investment.

Any uninsured losses or high insurance premiums will reduce our net income and the amount of our cash distributions to stockholders.

      Our advisor will attempt to obtain adequate insurance to cover significant areas of risk to us as a company and to our properties. However, there are types of losses at the property level, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. We may not have adequate coverage for such losses. If any of our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions to stockholders.

We may have difficulty selling real estate investments, and our ability to distribute all or a portion of the net proceeds from such sale to our stockholders may be limited.

      Equity real estate investments are relatively illiquid. We will have a limited ability to vary our portfolio in response to changes in economic or other conditions. We will also have a limited ability to sell assets in order to fund working capital and similar capital needs. When we sell any of our properties, we may not realize a gain on such sale. We may not elect to distribute any proceeds from the sale of properties to our stockholders; for example, we may use such proceeds to:

•  purchase additional properties;

•  repay debt, if any;

•  buy out interests of any co-venturers or other partners in any joint venture in which we are a party;

•  create working capital reserves; or

•  make repairs, maintenance, tenant improvements or other capital improvements or expenditures to our remaining properties.

      Our ability to sell our properties may also be limited by our need to avoid a 100% penalty tax that is imposed on gain recognized by a REIT from the sale of property characterized as dealer property. In order to ensure that we avoid such characterization, we may be required to hold our properties for a minimum period of time, generally four years, and comply with certain other requirements in the Internal Revenue Code.

Real estate market conditions at the time we decide to dispose of a property may be unfavorable which could reduce the price we receive for a property and lower the return on your investment.

      We intend to hold the properties in which we invest until we determine that selling or otherwise disposing of properties would help us to achieve our investment objectives. General economic conditions, availability of financing, interest rates and other factors, including supply and demand, all of which are beyond our control, affect the real estate market. We may be unable to sell a property for the price, on the terms, or within the time frame we want. Accordingly, the gain or loss on your investment could be affected by fluctuating market conditions.

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As part of otherwise attractive portfolios of properties, substantially all of which we can own on an all-cash basis, we may acquire some properties with existing lock-out provisions which may inhibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.

      Loan provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available for distributions to you. Loan provisions may prohibit us from reducing the outstanding indebtedness with respect to properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties.

      Loan provisions could impair our ability to take actions that would otherwise be in the best interests of our stockholders and, therefore, may have an adverse impact on the value of our stock, relative to the value that would result if the loan provisions did not exist. In particular, loan provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.

If we sell properties by providing financing to purchasers of our properties, distribution of net sales proceeds to our stockholders would be delayed and defaults by the purchasers could reduce our cash available for distribution to stockholders.

      If we provide financing to purchasers, we will bear the risk that the purchaser may default. Purchaser defaults could reduce our cash distributions to you. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon a sale are actually paid, sold, refinanced or otherwise disposed of or completion of foreclosure proceedings.

Actions of our joint venture partners could subject us to liabilities in excess of those contemplated or prevent us from taking actions which are in the best interests of our stockholders which could result in lower investment returns to our stockholders.

      We are likely to enter into joint ventures with affiliates and other third parties to acquire or improve properties. We may also purchase properties in partnerships, co-tenancies or other co-ownership arrangements. Such investments may involve risks not otherwise present when acquiring real estate directly, including, for example:

•  that such co-venturer, co-owner or partner may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture;

•  the possibility that our co-venturer, co-owner or partner in an investment might become insolvent or bankrupt;

•  the possibility that we may incur liabilities as a result of an action taken by our co-venturer, co-owner or partner;

•  that such co-venturer, co-owner or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT; or

•  that under certain joint venture arrangements, neither venture partner may have the power to control the venture, and an impasse could be reached which might have a negative influence on the joint venture.

      These events might subject us to liabilities in excess of those contemplated and thus reduce your investment returns. If we have a right of first refusal or buy/sell right to buy out a co-venturer, co-owner or partner, we may be unable to finance such a buy-out if it becomes exercisable or we may be required to purchase such interest at a time when it would not otherwise be in our best interest to do so. If our

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interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to elect to purchase an interest of a co-venturer subject to the buy/sell right, in which case we may be forced to sell our interest as the result of the exercise of such right when we would otherwise prefer to keep our interest. Finally, we may not be able to sell our interest in a joint venture if we desire to exit the venture.

Risks Associated with Debt Financing

We may use temporary acquisition financing to acquire properties and otherwise incur other indebtedness, which will increase our expenses and could subject us to the risk of losing properties in foreclosure if our cash flow is insufficient to make loan payments.

      We may, in some instances, acquire real properties using temporary acquisition financing. This will enable us to acquire properties before we have raised offering proceeds for the entire purchase price. We plan to use subsequently raised offering proceeds to pay off the temporary acquisition financing.

      We may borrow funds for operations, tenant improvements, capital improvements or for other working capital needs. We may also borrow funds to make distributions including but not limited to funds to satisfy the REIT tax qualification requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders. We may also borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. To the extent we borrow funds, we may raise additional equity capital or sell properties to pay such debt.

      If there is a shortfall between the cash flow from a property and the cash flow needed to service temporary acquisition financing on that property, then the amount available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of your investment. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, the value of your investment will be reduced.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to you.

      When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage, or replace our advisor. These or other limitations may limit our flexibility and prevent us from achieving our operating plans.

High levels of debt or increases in interest rates could increase the amount of our loan payments, reduce the cash available for distribution to stockholders and subject us to the risk of losing properties in foreclosure if our cash flow is insufficient to make loan payments.

      Our policies do not limit us from incurring debt. High debt levels would cause us to incur higher interest charges, would result in higher debt service payments, and could be accompanied by restrictive covenants. Interest we pay could reduce cash available for distribution to stockholders. Additionally, if we incur variable rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to make distributions to you. In addition, if we need to repay existing debt

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during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments and could result in a loss.

Federal Income Tax Risks

If we fail to qualify as a REIT, we will be subjected to tax on our income and the amount of distributions we make to our stockholders will be less.

      We intend to qualify as a REIT under the Internal Revenue Code. A REIT generally is not taxed at the corporate level on income it currently distributes to its stockholders. Qualification as a REIT involves the application of highly technical and complex rules for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to continue to qualify as a REIT. In addition, new legislation, regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.

      If we elected to be taxed as a REIT and then were to fail to qualify as a REIT in any taxable year:

•  we would not be allowed to deduct our distributions to our stockholders when computing our taxable income;

•  we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates;

•  we would be disqualified from being taxed as a REIT for the four taxable years following the year during which qualification was lost, unless entitled to relief under certain statutory provisions;

•  we would have less cash to make distributions to our stockholders; and

•  we might be required to borrow additional funds or sell some of our assets in order to pay corporate tax obligations we may incur as a result of our disqualification.

      We encourage you to read the “Federal Income Tax Considerations” section of this prospectus for further discussion of the tax issues related to this offering.

Even if we qualify and maintain our status as a REIT, we may be subject to federal and state income taxes in certain events, which would reduce our cash available for distribution to our stockholders.

      Net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to pay sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of our operating partnership or at the level of the other companies through which we indirectly own our assets. Any federal or state taxes we pay will reduce the cash available to make distributions to you.

If our operating partnership is classified as a “publicly-traded partnership” under the Internal Revenue Code, it will be subjected to tax on our income and the amount of distributions we make to our stockholders will be less.

      We structured the operating partnership so that it would be classified as a partnership for federal income tax purposes. In this regard, the Internal Revenue Code generally classifies “publicly traded partnerships” (as defined in Section 7704 of the Internal Revenue Code) as associations taxable as corporations (rather than as partnerships), unless substantially all of their taxable income consists of specified types of passive income. In order to minimize the risk that the Internal Revenue Code would

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classify the operating partnership as a “publicly traded partnership” for tax purposes, we placed certain restrictions on the transfer and/or redemption of partnership units in our operating partnership. If the Internal Revenue Service were to assert successfully that our operating partnership is a “publicly traded partnership,” and substantially all of the operating partnership’s gross income did not consist of the specified types of passive income, the Internal Revenue Code would treat our operating partnership as an association taxable as a corporation. In such event, the character of our assets and items of gross income would change and would prevent us from qualifying and maintaining our status as a REIT. In addition, the imposition of a corporate tax on our operating partnership would reduce the amount of cash distributable to us from our operating partnership and therefore would reduce our amount of cash available to make distributions to you.

      These topics are discussed in greater detail in the “Federal Income Tax Considerations — Tax Aspects of Our Operating Partnership” section of this prospectus.

Dividends payable by REITs do not qualify for the reduced tax rates under recently enacted tax legislation.

      Recently enacted tax legislation generally reduces the maximum tax rate for dividends payable by corporations to individuals to 15% through 2008. Dividends payable by REITs, however, generally continue to be taxed at the normal rate applicable to the individual recipient, rather than the 15% preferential rate. Although this legislation does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could reduce the value of the stock of REITs, including our stock.

Distributions to tax-exempt investors may be classified as unrelated business taxable income and tax-exempt investors would be required to pay tax on the unrelated business taxable income and to file income tax returns.

      Neither ordinary nor capital gain distributions with respect to our common stock nor gain from the sale of stock should generally constitute unrelated business taxable income to a tax-exempt investor. However, there are certain exceptions to this rule. In particular:

•  under certain circumstances, part of the income and gain recognized by certain qualified employee pension trusts with respect to our stock may be treated as unrelated business taxable income if our stock is predominately held by qualified employee pension trusts (which we do not expect to be the case);

•  part of the income and gain recognized by a tax exempt investor with respect to our stock would constitute unrelated business taxable income if such investor incurs debt in order to acquire the common stock; and

•  part or all of the income or gain recognized with respect to our stock held by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (9), (17), or (20) of the Code may be treated as unrelated business taxable income.

      We encourage you to consult your own tax advisor to determine the tax consequences applicable to you if you are a tax-exempt investor.

Foreign investors may be subject to FIRPTA tax on the sale of our stock if we are unable to qualify as a “domestically controlled” REIT.

      A foreign person disposing of a U.S. real property interest, including stock of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to a tax, known as FIRPTA tax, on the gain recognized on the disposition. Such FIRPTA tax does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50% of the REIT’s capital stock, by value, has been owned directly or indirectly by

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persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence.

      We cannot assure you that we will qualify as a “domestically controlled” REIT. If we were to fail to so qualify, gain realized by foreign investors on a sale of our stock would be subject to FIRPTA tax, unless our stock were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 5% of the value of our outstanding common stock. We encourage you to consult your own tax advisors to determine the impact of federal, state, local and foreign tax laws to you on an investment in our stock, including any reporting requirements.

Retirement Plan Risks

If you fail to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, you could be subject to criminal and civil penalties.

      There are special considerations that apply to pension or profit sharing trusts or IRAs investing in stock. If you are investing the assets of a pension, profit sharing, 401(k), Keogh or other qualified retirement plan or the assets of an IRA in our stock, you should satisfy yourself that:

•  your investment is consistent with your fiduciary obligations under ERISA and the Internal Revenue Code;

•  your investment is made in accordance with the documents and instruments governing your plan or IRA, including your plan’s investment policy;

•  your investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Internal Revenue Code;

•  your investment will not impair the liquidity of the plan or IRA;

•  your investment will not produce “unrelated business taxable income” for the plan or IRA;

•  you will be able to value the assets of the plan annually in accordance with ERISA requirements and applicable provisions of the plan or IRA; and

•  your investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

      Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Internal Revenue Code may result in imposition of civil and criminal penalties, and can subject the fiduciary to equitable remedies. In addition, if an investment in our stock constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary who authorized or directed the investment may be subject to imposition of excise taxes with respect to the amount invested.

An investment in our stock may not be suitable for every employee benefit plan, and may result in the plan fiduciary breaching its duty to the plan.

      When considering an investment in our stock, an individual with investment discretion over assets of any pension plan, profit-sharing plan, retirement plan, IRA or other employee benefit plan covered by ERISA should consider whether the investment satisfies the fiduciary requirements of ERISA and other applicable laws. In particular, attention should be paid to the diversification requirements of Section 404(a)(1)(C) of ERISA in light of all the facts and circumstances, including the portion of the plan’s portfolio of which the investment will be a part. All plan investors should also consider whether the investment is prudent and meets plan liquidity requirements as there may be only a limited market in which to sell or otherwise dispose of our stock, and whether the investment is permissible under the plan’s governing instrument. We have not, and will not, evaluate whether an investment in our stock is suitable

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for any particular plan. Rather, we will accept entities as stockholders if an entity otherwise meets the suitability standards set forth in the “Suitability Standards” section in this prospectus.

ERISA fiduciaries are required to determine annually the fair market value of each asset in the ERISA plan based on liquidation value. The annual statement of value that we will be sending to stockholders subject to ERISA and to certain other plan stockholders is only an estimate and may not comply with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law.

      The annual statement of value will report the value of each share of our stock based as of the close of our fiscal year. No independent appraisals will be obtained and the value will be based upon an estimated amount we determine would be received if our properties and other assets were sold as of the close of our fiscal year and if such proceeds, together with our other funds, were distributed pursuant to a liquidation. However, the net asset value of each share of stock will be deemed to be $8 during this offering and for the first three years following the termination of this offering, unless our board of directors otherwise determines. Because this is only an estimate, we may subsequently revise any annual valuation that is provided. We cannot assure you that:

•  a value included in the annual statement could actually be realized by us or by our stockholders upon liquidation;

•  stockholders could realize that value if they were to attempt to sell their stock; or

•  an annual statement of value would comply with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law.

      We will stop providing annual statements of value if our stock becomes listed for trading on a national stock exchange or included for quotation on the Nasdaq National Market.

      For a more complete discussion of the foregoing issues and other risks associated with an investment in our stock by retirement plans, please see the “ERISA Considerations” section of this prospectus.

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ESTIMATED USE OF PROCEEDS

      The following table estimates the use of the proceeds raised in this offering assuming that we sell the minimum of 125,000 shares, the midpoint of 27,700,000 shares and the maximum of 55,400,000 shares of our common stock. Many of the figures set forth below represent management’s best estimate since they cannot be precisely calculated at this time. Based on our estimate of the number of shares we sell in this offering through various distribution channels, we estimate that approximately 88.3% of our gross offering proceeds will be used for investments if the maximum offering amount is raised, while the remainder will be used to pay sales commissions, dealer manager fees, other organization and offering expenses and acquisition fees on our real estate investments.

						27,700,000 Shares					55,400,000 Shares
						(Including 5,500,000					(Including 11,000,000
	125,000 Shares					DRIP Shares)					DRIP Shares)
	Amount		Percent			Amount		Percent			Amount		Percent
Gross Offering Proceeds	$	1,000,000		100.0	%	$	217,200,000		100.0	%	$	434,400,000		100.0	%
Sales commissions(1)		70,000		7.0	%		12,432,000		5.7	%		24,864,000		5.7	%
Dealer Manager Fees(1)		30,000		3.0	%		5,328,000		2.5	%		10,656,000		2.5	%
Organization and Offering Expenses(2)(3)		30,000		3.0	%		6,272,400		2.9	%		8,271,000		1.9	%
Acquisition Fees(4)(5)		20,000		2.0	%		3,552,000		1.6	%		7,104,000		1.6	%
Working capital reserves(6)		—		—			—		—			—		—
Amount Available for Investment, including capitalized tenant improvements and leasing concessions and the payment of acquisition expenses(7)	$	850,000		85.0	%	$	189,615,600		87.3	%	$	383,505,000		88.3	%

(1)	For the midpoint and maximum offering of stock sold in our primary offering, includes sales commissions up to 7% of aggregate gross offering proceeds and a dealer manager fee up to 3% of aggregate offering proceeds. For the midpoint and maximum offering, stock sold through our distribution reinvestment plan includes no sales commissions and no dealer manager fee. See “Plan of Distribution.”
(2)	Organization and offering expenses consist of all expenses (other than sales commissions and the dealer manager fee) to be paid by us in connection with the offering, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder, and other accountable offering expenses, including, but not limited to: (i) amounts to reimburse our advisor for all marketing related costs and expenses such as salaries and direct expenses of employees of our advisor and its affiliates in connection with registering and marketing our shares; (ii) technology costs associated with the offering of our shares; (iii) issuer’s costs of conducting our training and education meetings; (iv) issuer’s costs of attending retail seminars conducted by participating broker-dealers; and (v) payment or reimbursement of bona fide due diligence expenses. Such expenses could be as much as 5% of gross proceeds from our primary offering. We will not reimburse our advisor for organization and offering expense unless and until we raise $1,000,000 in this offering.
(3)	Our advisor has agreed to reimburse us to the extent all of our offering expenses, including sales commissions, dealer manager fees, and organization and offering expenses (but excluding acquisition fees and acquisition expenses) incurred by us exceeds 15% of the gross offering proceeds, or if the aggregate of all organization and offering expenses, excluding sales commission and the dealer manager fees, exceeds 5% of gross proceeds from our primary offering. In no event will the maximum compensation to be paid to broker dealers of 10% with an additional 0.5% for bona fide due diligence expenses along with organizational and offering expenses exceed 15% of the gross offering proceeds.
(4)	We will pay our advisor an acquisition fee equal to 2% of gross proceeds from our primary offering upon receipt of the offering proceeds rather than at the time a property is acquired. As properties are

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acquired, the acquisition fees previously paid to the advisor will be allocated to the purchase price of the acquired properties. In the event any of the acquisition fees paid to our advisor are not ultimately allocated to the purchase price of a property, our advisor will refund the unallocated acquisition fees to us.

(5)	In addition to this acquisition fee, we may also incur customary advisor and third-party acquisition expenses in connection with the acquisition (or attempted acquisition) of a property.
(6)	Because we will be purchasing properties without permanent financing, we expect that our cash flow from operations will be sufficient for capital expenditures, maintenance and repairs. However, to the extent that our cash flow from operations is insufficient for such purposes, we may establish reserves from gross offering proceeds or out of non-liquidating net sale proceeds.
(7)	The amount available for investment will include customary advisor and third-party acquisition expenses such as legal fees and expenses, costs of appraisals, accounting fees and expenses, title insurance premiums and other closing costs and miscellaneous expenses relating to the acquisition of real estate and reserves for capital improvements, tenant improvements and maintenance and repairs of properties. If our proposed stock repurchase program is adopted, up to 100% of the net proceeds from sales under our distribution reinvestment plan could be used to repurchase shares of our stock. See “Description of Stock — Proposed Stock Repurchase Program.”

      Until used in connection with real estate investments, substantially all of the net proceeds of the offering may be invested in short-term, highly liquid investments including government obligations, bank certificates of deposit, short-term debt obligations and interest-bearing accounts or other authorized investments as determined by our board of directors.

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MANAGEMENT

Board of Directors

      We operate under the direction of our board of directors. The board is responsible for the management of our business affairs. The board has retained Cornerstone Realty Advisors, LLC as our advisor to manage our day-to-day operations and the acquisition and disposition of our investments, subject to the board’s supervision. Because of the numerous conflicts of interest created by the relationships among us, our advisor and its affiliates, many of the responsibilities of the board are subject to the oversight and approval of a majority of our independent directors. See “Conflicts of Interest.”

      As of the date of this prospectus, our board consists of five members, a majority of whom are independent directors. Our board may change the size of the board, but in no event will we have fewer than three board seats. Our charter provides that a majority of our directors must be independent directors. An “independent director” is a person who does not perform other services for or have any material business or professional relationship with our advisor or its affiliates, is not one of our officers or employees or an officer, employee, director or owner of our advisor or its affiliates and has not been so for the previous two years. Serving as a director of, or having an ownership interest of less than 10% in, another program sponsored by our advisor or its affiliates will not, by itself, preclude independent-director status, except that independent directors may not serve as a director for more than three REITs organized by our sponsor or advised by our advisor.

      Each director will serve until the next annual meeting of stockholders or until a successor has been duly elected and qualified. Although the number of directors may be increased or decreased, a decrease shall not have the effect of shortening the term of any incumbent director. Any director may resign at any time and may be removed with or without cause by the stockholders upon the affirmative vote of at least a majority of all the votes entitled to be cast at a meeting called for the purpose of the proposed removal. The notice of the meeting shall indicate that the purpose, or one of the purposes, of the meeting is to determine if the director shall be removed.

      Unless filled by a vote of the stockholders as permitted by the Maryland General Corporation Law in the case of removal, a vacancy created by an increase in the number of directors or the death, resignation, removal, adjudicated incompetence or other incapacity of a director shall be filled by a vote of a majority of the remaining directors. As provided in our charter, nominations of individuals to fill the vacancy of a board seat previously filled by an independent director will be made by the remaining independent directors. Nominees to fill the vacancy of any other board seat will be individuals nominated by our advisor.

      Our directors and officers are not required to devote all of their time to our business and are only required to devote sufficient time to our affairs as their duties require. In addition to meetings of the various committees of the board, which committees we describe below, we expect to hold regular board meetings each year. Our board is empowered to fix the compensation of all officers that it selects and may pay compensation to directors for services rendered to us in any other capacity.

      Our general investment and borrowing policies are set forth in this prospectus. Our directors may establish further written policies on investments and borrowings and shall monitor our administrative procedures, investment operations and performance to ensure that the policies are fulfilled and are in the best interest of our stockholders. Our independent directors will review our investment policies with sufficient frequency and at least annually to determine that the policies being followed are in the best interest of our stockholders. We will follow the policies on investments and borrowings set forth in this prospectus unless they are modified by our independent directors.

Committees of the Board of Directors

      Many of the powers of the board of directors may be delegated to one or more committees. Our charter requires that each committee consist of at least a majority of independent directors.

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Audit Committee

      The audit committee selects the independent public accountants to audit our annual financial statements, reviews the plans and results of the audit engagement with the independent public accountants, approves the audit and non-audit services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees and reviews the adequacy of our internal accounting controls.

Independent Directors Committee

      In order to reduce or eliminate certain potential conflicts of interest, a majority of our independent directors, that is, the directors who are not affiliated with our advisor, will approve all transactions between us and our advisor or its affiliates. Our independent directors are authorized to retain their own legal and financial advisors at our expense and are empowered to act on any matter permitted under Maryland law provided that a majority of our independent directors first determine that the matter at issue is such that the exercise of independent judgment by our advisor could reasonably be compromised. Those conflict-of-interest matters that cannot be delegated to a committee under Maryland law must be acted upon by both the board of directors and a majority of our independent directors. See “Conflicts of Interest — Certain Conflict Resolution Procedures.”

Compensation Committee

      Our compensation committee will discharge the board’s responsibilities relating to compensation of our executives. The compensation committee will administer the granting of stock options to our advisor, selected employees of our advisor and its directors, officers and affiliates based upon recommendations from our advisor and set the terms and conditions of such options in accordance with our Employee and Director Incentive Stock Plan, which we describe further below. Our compensation committee will also have authority to amend the Employee and Director Incentive Stock Plan or create other incentive compensation and equity-based plans.

Advisory Committees

      The board of directors may establish various advisory committees on which certain members of the board would sit to assist our advisor and its affiliates in areas that have a direct impact on our operations, such as the following: property management, asset management, investment, finance and planning, stockholder relations and communications.

Executive Officers and Directors

      We have provided below certain information about our executive officers and directors. Our directors serve for a term of one year or until their successors are duly elected and qualified. Our executive officers serve at the pleasure of our board of directors and have no fixed term of office.

Name	Age		Positions
Terry G. Roussel		52	President, Chief Executive Officer and Director
Sharon C. Kaiser		60	Chief Financial Officer
Dominic J. Petrucci		40	Chief Operating Officer
Robert C. Peterson		46	Chief Investment Officer
Alfred J. Pizzurro		49	Senior Vice President and Secretary
Paul Danchik		54	Director
Joseph H. Holland		47	Director
Daniel L. Johnson		49	Director
Lee Powell Stedman		51	Director

      Terry G. Roussel is one of the founding stockholders of the Cornerstone-related entities that commenced operations in 1989. Mr. Roussel has been our President and Chief Executive Officer and a

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director since 2004 and is the promoter of the company by initiating the founding and organizing of our business. Mr. Roussel is the Chief Executive Officer and a Director of Cornerstone Realty Advisors, LLC, our advisor. Mr. Roussel is also the President, Chief Executive Officer, a Director and the majority shareholder of Cornerstone Ventures, Inc., an affiliate of our advisor. Mr. Roussel is also a principal and the majority shareholder of Pacific Cornerstone Capital, Inc., the dealer-manager for this offering. Under Mr. Roussel’s direction, Cornerstone and its affiliates formed nine separate real estate investment funds and joint ventures. In 1993, Cornerstone and its affiliates became managing joint venture partner with Koll Capital Markets Group, Inc., a wholly owned subsidiary of Koll Management Services, Inc. (now owned by CB Richard Ellis).

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

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

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

      Sharon C. Kaiser joined Cornerstone in July 2005 as our Chief Financial Officer and in August 2005, she became the Chief Financial Officer of our advisor. Ms. Kaiser is responsible for our finance and accounting, MIS, human resources and administrative functions.

      Prior to joining Cornerstone, Ms. Kaiser was Director of Financial Operations for Westfield America, Inc., an owner, manager and developer of regional shopping centers with approximately $9 billion in assets and the American subsidiary of one of the largest listed retail REITs in the world with approximately $25 billion in assets. From 1999 to 2002, Ms. Kaiser served as Chief Financial Officer of The StayWell Company, a subsidiary of Vivendi Universal, and from 1995 to 1999, she served as Chief Financial Officer and Senior Vice President of HemaCare Corporation, a publicly-traded biomedical company. Her responsibilities included financial accounting and reporting, information technology, investor relations and human resources, as well as strategic planning and acquisition due diligence and integration.

      Before joining HemaCare Corporation, Ms. Kaiser served as the Chief Financial Officer of a publicly-traded (AMEX) REIT sponsored by The Koll Company. She started her career with Arthur Andersen and Co., leaving as a senior manager.

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

      Dominic J. Petrucci has been our Chief Operating Officer since 2004 and is also the Chief Operating Officer of our advisor and Cornerstone Ventures, Inc. Mr. Petrucci is responsible for overseeing all our operations.

      Prior to joining Cornerstone Ventures in 2002, Mr. Petrucci served since 1998 as Division President of Koll Development Company. In this capacity he managed the commercial real estate development

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activities for a 2.8 million square foot portfolio. Mr. Petrucci’s responsibilities included business development, divisional oversight of operations and administration, and participation on Koll Development Company’s Executive Committee and Investment Committee.

      Mr. Petrucci was a Vice President for Kitchell Development Company and Kitchell Corporation from 1996 to 1998. As Vice President for Kitchell Development Company, he oversaw Kitchell’s real estate development operations throughout the western United States. As Vice President — Finance for Kitchell Corporation, Mr. Petrucci provided total financial oversight of their domestic and international construction activities and managed the property management, financial services, human resources, and risk management departments for Kitchell ($300 million annual revenues).

      From 1990 until early 1996, Mr. Petrucci worked with the Koll organization in various capacities. He was Chief Financial Officer and Corporate Secretary for Koll Construction, Vice President — Finance for Koll International, and Group Controller for Koll Development. In his capacities with Kitchell and Koll, Mr. Petrucci was involved in the origination and restructuring of nearly $1 billion in debt and equity investments in addition to participation in the marketing and selling of nearly $300 million of property.

      Mr. Petrucci began his career in the real estate group at KPMG Peat Marwick in Los Angeles where he earned a Certified Public Accountant designation. Mr. Petrucci earned his Bachelor of Science degree in Commerce, with an accounting major from Rider University in Lawrenceville, New Jersey.

      Robert C. Peterson has been our Chief Investment Officer since 2004 and is also the Chief Investment Officer and a Director of our advisor. Mr. Peterson was previously Executive Vice President of Acquisitions and Dispositions for Koll Bren Schreiber Realty Advisors (“KBS”). KBS is one of the largest institutional real estate fund managers in the United States. KBS has acquired over $5 billion of commercial real estate on behalf of many of the largest private and public institutional investors in the United States. In his capacity, Mr. Peterson was the individual responsible for identifying, underwriting, acquiring and disposing of real estate opportunities in the western half of the United States for KBS. Mr. Peterson was with KBS since its inception in 1992 until 2003.

      From 1990 to 1992, he was an officer of Koll Management Services, Inc. (“Koll”), one of the largest managers and operators of commercial real estate in the United States. Mr. Peterson was instrumental in the formation of both the first joint venture between Koll and Cornerstone in 1993 and the second joint venture between Koll and Cornerstone in 1995.

      Mr. Peterson has 24 years of real estate investment experience, including a diverse background in acquisitions, financing, and leasing through previous affiliations with Koll Management Services, Meyer Real Estate Advisors, VMS Realty, Inc. and Peat Marwick in Chicago.

      Mr. Peterson is a Certified Public Accountant (CPA), Certified Commercial Investment Member (CCIM), Certified Property Manager (CPM) and a licensed Real Estate Broker in the state of California. Mr. Peterson also holds a Bachelor’s Degree in Accounting from the University of Illinois.

      Alfred J. Pizzurro has been our Senior Vice President and Secretary since 2004. Mr. Pizzurro is also a Senior Vice President and Director of our advisor and a Senior Vice President, a Director and a principal of Cornerstone Ventures, Inc. and Pacific Cornerstone Capital, Inc., the dealer manager for this offering. Mr. Pizzurro joined Cornerstone Ventures, Inc. in April 1998 and has been the individual primarily responsible for Cornerstone Venture’s marketing and new business development activities since that time.

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

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

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      Paul Danchik retired in 2003 as Senior Vice President of Warner Media Services, a division of Time Warner Inc. Mr. Danchik was a member of the Executive Management Team of Warner Media Services and was responsible for their Consumer Products Business unit. Mr. Danchik began his career with Ivy Hill Packaging in 1973 which was acquired by Warner Media Services in 1989. Mr. Danchik also serves as a director of Acres of Love, a non-profit organization currently operating eight homes licensed in the Republic of South Africa for care of abandoned children living with or affected by HIV/ AIDS. Mr. Danchik earned a Bachelor of Science Degree in Business Administration from the University of LaVerne.

      Joseph H. Holland is a Director of Cornerstone Realty Advisors, LLC. Mr. Holland is currently the managing member of Uptown Partners, LLC, a real estate group developing market-rate, multi-family housing in New York City. He is also of counsel with the law firm of Van Lierop, Burns & Bassett, where he handles a wide-ranging real estate law practice focused on the development of affordable housing projects in the New York City metropolitan area. Mr. Holland is Director, New York State Urban Development Corporation, gubernatorial appointee since 2000, Director, Municipal Assistance Corporation of the City of New York, gubernatorial appointee since 1998 and a Member, Board of Trustees, Cornell University since 1998.

      Mr. Holland is the former Commissioner of the New York State Division of Housing and Community Renewal. In this capacity, Mr. Holland headed the New York State Agency with more than two thousand employees. Mr. Holland was responsible for administering programs in the areas of community development, supervision of State-assisted housing developments and rent regulation in New York City and other municipalities. Mr. Holland held this position between 1995 and 1996. Between 1985 and 1987, Mr. Holland was Chief Counsel for the New York Standing Committee on Housing and Community Development. Mr. Holland is the 1991 recipient of the Volunteer Action Award, presented by President George Bush and the 1991 Entrepreneur of the Year Award, presented by New York Mayor David Dinkins.

      Mr. Holland is a 1982 Graduate of Harvard Law School. Mr. Holland received his Bachelor of Arts Degree from Cornell University in 1978 and his Master of Arts Degree from Cornell University in 1979 where his fields of concentration were U.S. Diplomatic History and African-American History.

      Daniel L. Johnson is the founder and since 2003 has been the Senior Vice President of Sales for InfoSpan, Inc., a developer and operator of customer interaction centers for United States based corporations with operations in Latin America. From 2000 to 2003, Mr. Johnson was the President of Rutilus Software, Inc. a developer of disk-based storage software. Prior to 2000, Mr. Johnson spent fourteen years with Toshiba America where he was Vice President of OEM Sales. In this capacity he was responsible for worldwide sales for products within his Division of Toshiba America. Mr. Johnson holds a Bachelor’s degree from Southern Illinois University.

      Lee Powell Stedman is the founder and Chief Executive Officer of Realty Development Advisors, LLC (“RDA”) which he formed in 1996. RDA is a full service commercial real estate company specializing in development, leasing and real estate consulting. Since 1996, Mr. Stedman has been involved in the development, financing and leasing of twenty-two commercial properties in five states. Prior thereto, Mr. Stedman was employed in the real estate acquisition department of a real estate firm and was Manager, REO/ Commercial Sales Specialist for the Resolution Trust Corporation. Mr. Stedman received his Bachelor of Science Degree from the University of Minnesota.

Compensation of Directors

      We intend to pay each of our directors who are not employees of our advisor or its affiliates for attending board and committee meetings as follows:

•  $3,000 per regularly scheduled board meeting attended in person or by teleconference;

•  $1,000 per regularly scheduled committee meeting attended in person or by teleconference ($1,500 for the audit committee chairperson and $1,250 for other committee chairpersons); and

•  $750 per special board meeting attended, whether held in person or by teleconference.

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      All directors will receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors and committees.

      In addition, we will issue stock options to the directors pursuant to our Employee and Director Incentive Stock Plan.

Employee and Director Incentive Stock Plan

      We adopted our Employee and Director Incentive Stock Plan to:

•  provide incentives to individuals who are granted stock awards because of their ability to improve our operations and increase profits;

•  encourage selected persons to accept or continue employment with us or with our advisor or its affiliates; and

•  increase the interest of directors in our success through their participation in the growth in value of our stock.

      The Employee and Director Incentive Stock Plan provides for the grant of awards to our directors and full-time employees (if we ever have employees), directors and full-time employees of our advisor and its affiliates, entities and full-time employees of entities that provide services to us, and certain consultants to us, our advisor and its affiliates. Awards granted under the plan may consist of nonqualified stock options, incentive stock options, restricted stock, share appreciation rights, and distribution equivalent rights.

      The total number of shares of our common stock reserved for issuance under the Employee and Director Incentive Stock Plan is equal to 10% of our outstanding shares of stock at any time. As of the date of this prospectus, no awards have been granted under the Employee and Director Incentive Stock Plan.

      Options entitle the holder to purchase shares of our common stock during a specified period and for a specified exercise price. We may grant options under the Employee and Director Incentive Stock Plan that are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code (“incentive stock options”) or options that are not incentive stock options (“nonqualified stock options”). Incentive stock options and nonqualified stock options will generally have an exercise price that is not less than 100% of the fair market value of the common stock underlying the option on the date of grant and will expire, with certain exceptions, 10 years after the grant date.

      Restricted stock awards entitle the recipient to shares of our common stock under terms that provide for vesting over a specified period of time. Unvested shares would typically be forfeited upon the termination of the recipient’s employment or other relationship with us. Generally, shares of restricted stock may not be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted stock may receive cash distributions before the restrictions have lapsed, but any distributions payable in the form of common stock, rather than cash, will be subject to the same restrictions as the underlying restricted stock.

      Stock appreciation rights entitle the recipient to receive from us, at the time of exercise, an amount in cash (or in some cases, shares of common stock) equal to the amount by which the fair market value of the common stock underlying the stock appreciation right on the date of exercise exceeds the price specified at the time of grant, which cannot be less than the fair market value of the common stock on the grant date.

      Distribution equivalent rights entitle the recipient to receive, for a specified period, a payment equal to the periodic distribution declared and made by us on one share of common stock. Distribution equivalent rights are forfeited to us upon the termination of the recipient’s employment or other relationship with us.

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      The term of the plan is 10 years. Upon our earlier dissolution or liquidation, upon our reorganization, merger or consolidation with one or more corporations as a result of which we are not the surviving corporation or upon sale of all or substantially all of our properties, the plan will terminate, and provision will be made for the assumption by the successor corporation of the awards granted or the replacement of the awards with similar awards with respect to the stock of the successor corporation, with appropriate adjustments as to the number and kind of shares and exercise prices. Alternatively, rather than providing for the assumption of awards, the compensation committee may either (i) shorten the period during which awards are exercisable, or (ii) cancel an award upon payment to the participant of an amount in cash that the compensation committee determines is equivalent to the amount of the fair market value of the consideration that the participant would have received if the participant exercised the award immediately prior to the effective time of the transaction.

      The compensation committee will set the term of the options in its discretion, but no option will have a term greater than ten years. The compensation committee will set the period during which the right to exercise an option vests. No option issued may be exercised, however, if such exercise would jeopardize our status as a REIT under the Internal Revenue Code. In addition, no option may be sold, pledged, assigned or transferred by an option holder in any manner other than by will or the laws of descent or distribution.

      In the event that the compensation committee determines that any distribution, recapitalization, stock split, reorganization, merger, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of our assets, or other similar corporate transaction or event, affects the stock such that the compensation committee determines an adjustment to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the plan or with respect to an option, then the compensation committee shall, in such manner as it may deem equitable, adjust the number and kind of shares or the exercise price with respect to any option.

Director Option Grants for Non-Employee Directors

      We expect to issue non-qualified stock options to purchase 10,000 shares of common stock to each of our directors who are not employees of our advisor or its affiliates pursuant to this plan. In addition, we expect to issue options to purchase 5,000 shares of common stock to each director who is not an employee of our advisor or its affiliates and who is then in office on the date of each annual stockholders’ meeting. We may not grant options at any time when the issuance of the stock underlying the grant, when combined with those issuable upon exercise of outstanding options granted to our advisor, directors, officers or any of their affiliates, would exceed 10% of our outstanding shares.

      The exercise price for the initial options for 10,000 shares will be $8 per share. The exercise price for the subsequent options will be the fair market value of the shares on the date they are granted. Fair market value is generally defined to mean (1) the closing sales price on the immediately preceding date on which sales were reported if the stock is listed on a securities exchange or are traded over the Nasdaq National Market or (2) the mean between the high bid and low asked prices for such immediately preceding trading date if no sales were reported or if the stock is not listed on a securities exchange or traded over the Nasdaq National Market. However, if our stock is regularly quoted by a recognized securities dealer but selling prices are not reported or if there is no public market for our stock, then the compensation committee will determine fair market value in good faith.

      Options will lapse on the first to occur of (1) the tenth anniversary of the date we grant them, or (2) three months following the date the director ceases to be a director for any reason other than death or disability. Options may be exercised by payment of cash or through the delivery of shares of our common stock. Options are generally exercisable in the case of death or disability for a period of one year after death or the disabling event. No option issued may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code. The independent directors may not sell, pledge, assign or transfer their options other than by will or the laws of descent or distribution.

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Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents

      Maryland law provides that a director has no liability in that capacity if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter requires us to indemnify our directors, our officers, our advisor and its affiliates and their respective officers, directors, managers and employees for losses they may incur by reason of their service in those capacities unless:

•  their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty;

•  they actually received an improper personal benefit in money, property or services; or

•  in the case of any criminal proceeding, they had reasonable cause to believe that the act or omission was unlawful.

      In addition to the above provisions of the Maryland General Corporation Law, our charter provides that in order for a director, our advisor or its affiliates to receive indemnification, all of the following conditions must be met:

•  our directors, our advisor or its affiliates have determined, in good faith, that the course of conduct that caused the loss or liability was in our best interests;

•  our directors, our officers, our advisor or its affiliates were acting on our behalf or performing services for us;

•  in the case of our independent directors, the liability or loss was not the result of gross negligence or willful misconduct by the party seeking indemnification;

•  in the case of our non-independent directors, our advisor or its affiliates, the liability or loss was not the result of negligence or misconduct by the party seeking indemnification; and

•  the indemnification is recoverable only out of our net assets or the proceeds of insurance and not from the stockholders.

      The SEC takes the position that indemnification against liabilities arising under the Securities Act of 1933, as amended, is against public policy and is unenforceable. Furthermore, our charter prohibits our indemnification of our directors, our officers, our advisor or its affiliates or broker-dealers for liabilities arising from or out of a violation of state or federal securities laws, unless one or more of the following conditions are met:

•  the party seeking indemnification has prevailed on the merits of each claim involving alleged securities law violations;

•  the claims involving alleged securities law violations have been dismissed with prejudice on the merits by the court; or

•  the court approves a settlement of the claims and finds that indemnification of the settlement and the related costs should be made, provided the court has been advised of the position as to indemnification for securities law violations of the SEC and any state securities commission in which the stock was offered.

Our Advisor

      Our advisor is Cornerstone Realty Advisors, LLC. Our advisor has contractual and fiduciary responsibilities to us and our stockholders.

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      The executive officers and directors of Cornerstone Realty Advisors, LLC are as follows:

Name	Age		Positions
Terry G. Roussel		52	President, Chief Executive Officer and Director
Sharon C. Kaiser		54	Chief Financial Officer
Dominic J. Petrucci		40	Chief Operating Officer
Robert C. Peterson		46	Chief Investment Officer
Alfred J. Pizzurro		49	Senior Vice President and Director

      The backgrounds of Messrs. Roussel, Petrucci, Peterson and Pizzurro and Ms. Kaiser are described in the “Management — Executive Officers and Directors” section of this prospectus.

The Advisory Agreement

      Under the terms of the advisory agreement, our advisor will use commercially reasonable efforts to present to us investment opportunities to provide a continuing and suitable investment program consistent with the investment policies and objectives adopted by our board of directors. The advisory agreement calls for our advisor to provide for our day-to-day management and to retain property managers and leasing agents, subject to the authority of our board of directors, and to perform other duties including the following:

•  find, present and recommend to us real estate investment opportunities consistent with our investment policies and objectives;

•  structure the terms and conditions of our real estate acquisitions, sales or joint ventures;

•  acquire properties in compliance with our investment objectives and policies;

•  enter into leases and service contracts for our properties;

•  oversee the performance of our property managers and leasing agents;

•  review and analyze the operating and capital budgets of our properties;

•  review and analyze financial information for each property and our overall portfolio;

•  formulate and oversee the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing and disposition of our properties;

•  manage communications with our stockholders;

•  supervise our government reporting obligations, including SEC and IRS filings; and

•  appoint and supervise our transfer agent.

      The fees payable to our advisor under the advisory agreement are described in detail at “Management Compensation” below. We also describe in that section our obligation to reimburse our advisor for organization and offering expenses, administrative and management services and payments made by our advisor to third parties in connection with potential acquisitions.

      The term of the current advisory agreement ends on                     , 2006 (its one year anniversary date) and may be renewed for an unlimited number of successive one-year periods upon mutual consent of our advisor and us. Additionally, either of us may terminate the advisory agreement without penalty upon 60 days written notice. Upon termination of the advisory agreement, we are required to pay our advisor the subordinated performance fee due upon termination. This fee ranges from a low of 5% of the amount by which the sum of the net appraised value of our assets on the date the advisory agreement is terminated plus total dividends (other than stock dividends) paid prior to termination of the advisory agreement exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by which the sum of the net appraised value of our assets plus all prior dividends (other than stock dividends) exceeds the amount of invested capital plus annualized returns of 10% or more.

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      Our advisor and its affiliates expect to engage in other business ventures and, as a result, their resources will not be dedicated exclusively to our business. However, pursuant to the advisory agreement, our advisor must devote sufficient resources to our administration to discharge its obligations. Our advisor may assign the advisory agreement to an affiliate upon our approval. We may assign or transfer the advisory agreement to a successor entity.

      If we retain our advisor or its affiliates to manage and lease any of our properties, we will pay a market-based fee as recommended by our advisor and approved by our board of directors, including a majority of independent directors. Our advisor will make this recommendation based on a review of what other management and leasing companies charge for the type and location of properties subject to the property management or leasing agreement. In addition, we may reimburse our advisor or its affiliates for costs and expenses our advisor or its affiliates incur in managing and leasing the properties we own. If we manage joint ventures and retain our advisor or its affiliates to manage or lease the property held by those joint ventures, the joint ventures may also reimburse our advisor or its affiliates for similar costs and expenses relating to the joint ventures’ properties. Reimbursable costs and expenses typically include wages and salaries and other employee-related expenses for employees engaged in operating, managing, maintaining, and leasing properties subject to a management or leasing agreement. Employee-related expenses include taxes, insurance, benefits, legal, travel, and other out-of-pocket expenses related to managing and leasing properties. The management and leasing fees we may pay to our advisor or its affiliates would cover, without additional expense to us, our advisor’s or its affiliates’ general overhead costs, such as its expenses for rent and utilities.

      We may also pay our advisor or its affiliates a market-based fee for the initial leasing of newly constructed properties, which is typically an amount equal to one month’s rent. In addition, our advisor may receive a separate fee if a tenant engages our advisor or its affiliates to oversee tenant improvements.

      Our advisor or its affiliates will hire, direct and establish policies for employees who will have direct responsibility for each property’s operations, including managers and assistant managers, as well as building and maintenance personnel. Some or all of the employees may be employed on a part-time basis and may also be employed by one or more of the following:

•  our advisor;

•  partnerships or other entities organized by our advisor or its affiliates; and

•  other persons or entities owning properties managed by our advisor or its affiliates.

Management Decisions

      The primary responsibility for the management decisions of our advisor and its affiliates, including the selection of investment properties to be recommended to our board of directors, the negotiation for these investments and asset-management decisions, will reside in officers of our advisor. We expect that proposed transactions will often be discussed by the board of directors in advance of a final board of directors vote. During these discussions, independent directors can offer ideas for ways in which transactions can be improved. The board of directors is empowered to approve or reject all acquisitions and dispositions of real estate.

Initial Investment by Our Advisor

      Terry G. Roussel, an affiliate of our advisor has purchased 125 shares of our common stock for $1,000. Our advisor and its affiliates have purchased partnership interests in Cornerstone Operating Partnership, L.P. for $200,000. This purchase of shares and partnership interests by our advisor will not count toward meeting the minimum offering amount. Our advisor may not sell any of these shares or partnership interests during the period it serves as our advisor except to its affiliates. During the period our advisor serves as such, affiliates of our advisor may not sell any of these shares or partnership interests except to our advisor and other affiliates of our advisor. Although our advisor and its affiliates are not prohibited from acquiring additional shares of our stock, our advisor currently has no options or warrants to acquire any additional shares of stock.

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Dealer Manager

      Pacific Cornerstone Capital, Inc., our dealer manager, is a member firm of the National Association of Securities Dealers, Inc. Pacific Cornerstone Capital will provide wholesaling, sales promotion and marketing assistance services to us in connection with the distribution of the stock offered pursuant to this prospectus. It may also sell stock at the retail level.

      Terry G. Roussel and Alfred J. Pizzurro are the holders of the common stock of Pacific Cornerstone Capital which is the only class of stock entitled to vote. Terry G. Roussel and Cornerstone Industrial Properties, LLC, the sole member of our advisor, are the holders of the preferred stock of Pacific Cornerstone Capital. The directors and executive officers of Pacific Cornerstone Capital are:

Name	Age		Positions
Terry G. Roussel		52	President, Chief Financial Officer, Chief Compliance Officer and Director
Alfred J. Pizzurro		49	Secretary and Director

      The backgrounds of Messrs. Roussel and Pizzurro are described in the “Management — Executive Officers and Directors” section of this prospectus.

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MANAGEMENT COMPENSATION

      We have no paid employees at the present time. Our advisor will manage our day-to-day affairs. The following table summarizes all of the compensation and fees we will pay to our advisor and its affiliates, including amounts to reimburse their costs in providing services. The sales commissions and dealer manager fee may vary for different categories of purchasers. See “Plan of Distribution.” This table assumes the stock is sold through distribution channels associated with the highest possible sales commissions and dealer manager fees. We expect actual sales commissions and dealer managers to be lower, on average, than the amounts shown below. See “Estimated Use of Proceeds.”

		Estimated Amount for Maximum
Type of Compensation	Determination of Amount	Offering (55,400,000 shares)(1)
	Offering Stage
Sales Commissions(2)(3)	Up to 7% of gross proceeds in the primary offering. Sales commissions payable to our dealer manager in connection with this offering are expected to average 5.7% of total gross offering proceeds. Sales commissions will range between zero and 7% on individual sales. Some or all of the sales commissions may be re-allowed to participating brokers.	Up to $24,864,000
Dealer Manager Fee(2)(3)	Up to 3% of gross proceeds from the primary offering. These fees will range between zero and 3% of gross proceeds on individual sales of shares in our primary offering. Some or all of the dealer manager fees may be re-allowed to participating brokers.	Up to $10,656,000
Organization and Offering Expenses(3)	We expect to incur the following expenses in connection with this offering: SEC registration fee .................... $51,648 NASD filing fee ......................... $30,500 Printing and mailing ................. $1,500,000 Blue sky fees and expenses ............. $150,000 Legal fees and expenses .............. $1,025,000 Accounting fees and expenses ........... $200,000 Sales and advertising expenses ....... $1,800,000 Education and training meetings ......... $45,000 Advisor employee costs ............... $1,900,000 Retail seminars — sponsor ............ $300,000 IT systems and equipment ............... $250,000 Due diligence .......................... $328,000 Order processing and escrow ............ $120,000 Miscellaneous .......................... $570,852 Reimbursements to our advisor or its affiliates for organization and offering expenses in connection with this offering are estimated to be 1.9% of total gross offering proceeds in the event we sell the	All amounts other than the SEC registration fee and the NASD filing fee are estimates. The actual amounts of these expenses cannot be determined at the present time. We estimate the total amount of the organization and offering expenses to be approximately $8,271,000 but they could be as high as $17,760,000.

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		Estimated Amount for Maximum
Type of Compensation	Determination of Amount	Offering (55,400,000 shares)(1)
	maximum offering, but could be as much as 5% of gross proceeds from our primary offering. Our advisor will pay any organization and offering expenses in excess of 5% of gross offering proceeds. In addition, our advisor will also pay any organization and offering expenses to the extent that such expenses, plus sales commissions and the dealer manager fee (but not the acquisition fees or expenses) are in excess of 15% of gross offering proceeds. In the event we do not raise $1,000,000 in this offering, our advisor will not be reimbursed for organization and offering expenses.
	Acquisition Stage
Acquisition Fees(4)	Equal to 2% of gross proceeds from the primary offering. The acquisition fees will be paid to our advisor as money is raised in this offering. As properties are acquired, the acquisition fees previously paid to the advisor will be allocated to the purchase price of the acquired properties. In the event any of the acquisition fees paid to our advisor are not ultimately allocated to the purchase price of a property, our advisor will refund the unallocated acquisition fees to us.	Up to $7,104,000
Acquisition Expenses	Reimbursement of direct costs of our advisor and payments made by our advisor to third parties in connection with potential acquisitions. Our acquisition fees and acquisition expenses in connection with the acquisition of a real estate investment may not exceed 6% of the contract price.	Not determinable at this time
	Operational Stage
Asset Management Fees(5)	Monthly fee equal to one-twelfth of 1% of the sum of the aggregate GAAP basis book carrying values of our assets invested, directly or indirectly, in equity interests in and loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves. In addition, direct costs and expenses incurred by our advisor in providing asset management services are reimbursed to our advisor. These fees and expenses are in addition to management fees that we expect to pay to third party property managers.	Not determinable at this time

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		Estimated Amount for Maximum
Type of Compensation	Determination of Amount	Offering (55,400,000 shares)(1)
Operating Expenses(6)	Reimbursement of our advisor’s direct and indirect costs of providing administrative and management services. Our advisor must reimburse us the amount by which our total annual operating expenses exceed the greater of 2% of our average invested assets or 25% of our net income unless a majority of our independent directors have determined that such excess expenses were justified based on unusual and non-recurring factors.	Not determinable at this time
Property Management and Leasing Fees(7)	If we retain our advisor or an affiliate to manage and lease some of our properties, we will pay a market-based property management fee or property leasing fee, which may include reimbursement of our advisor’s or affiliate’s personnel costs and other costs of managing the properties.	Not determinable at this time
	Listing/ Liquidation Stage
Disposition Fees(8)	Up to 3% of contract price for property sold for substantial assistance in connection with the sale.	Not determinable at this time
Subordinated Participation In Net Sale Proceeds (payable only if we are not listed on an exchange)	After stockholders have received cumulative distributions equal to their invested capital plus the cumulative, non- compounded annual returns on such invested capital in the percentages set forth below, calculated on an aggregated weighted average daily basis, our advisor will be paid a subordinated participation in net sale proceeds as follows. Invested capital for investors in this offering is $8.00 per share less any return of capital. Invested capital in any subsequent public offering is the maximum offering price per share less any return of capital. Invested capital for other investors such as persons who exchange their OP units for shares of our stock is the issue price per share less any return of capital.	Not determinable at this time
	• 5% of remaining net sale proceeds if investors receive an amount equal to their invested capital plus a return of 6% or more, but less than 8% on invested capital; • 10% of remaining net sales proceeds if investors receive an amount equal to their invested capital plus a return of 8% or more, but less than 10% on invested capital; or

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		Estimated Amount for Maximum
Type of Compensation	Determination of Amount	Offering (55,400,000 shares)(1)
	• 15% of net sales proceeds if investors receive an amount equal to their invested capital plus a return of 10% or more on invested capital.
Subordinated Performance Fee Due Upon Termination (payable only upon termination of the agreement with our advisor)	Upon termination of the advisory agreement, we are required to pay our advisor the subordinated performance fee due upon termination. This fee ranges from a low of 5% of the amount by which the sum of the net appraised value of our assets on the date the advisory agreement is terminated plus total dividends (other than stock dividends) paid prior to termination of the advisory agreement exceeds the amount of invested capital plus cumulative, non-compounded annual returns of 6% on invested capital to a high of 15% of the amount by which the sum of the net appraised value of our assets plus all prior dividends (other than stock dividends) exceeds the amount of invested capital plus cumulative, non-compounded annual returns of 10% or more on invested capital.	Not determinable at this time
Subordinated Incentive Listing Fee (payable only if we are listed on an exchange)(9)	In the event we list our stock for trading, we are required to pay our advisor a subordinated incentive listing fee. This fee ranges from a low of 5% of the amount by which the market value of our common stock plus all prior dividends (other than stock dividends) exceeds the amount of invested capital plus cumulative, non-compounded annual returns on invested capital of 6%, to a high of 15% of the amount by which the sum of the market value of our stock plus all prior dividends (other than stock dividends) exceeds the amount of invested capital plus cumulative, non-compounded annual returns of 10% or more on invested capital. For purposes of calculating this fee, invested capital in this offering is $8.00 per share less any return of capital. Invested capital in any subsequent public offering is the maximum offering price per share less any return of capital. Invested capital for other investors such as persons who exchange their OP units for shares of our stock is the issue price per share less any return of capital.	Not determinable at this time

(1)  The estimated maximum dollar amounts are based on the sale of the maximum of 44,400,000 shares to the public in our primary offering, plus 11,000,000 shares through the distribution reinvestment plan.

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(2)	The sales commissions and, in some cases, the dealer manager fee will not be charged with regard to stock sold to or for the account of certain categories of purchasers. See “Plan of Distribution.”
(3)	These organization and offering expenses include all expenses (other than sales commissions and dealer manager fees) to be paid by us in connection with the offering, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder and other accountable offering expenses, including, but not limited to: (i) amounts to reimburse our advisor for all marketing related costs and expenses such as salaries and direct expenses of employees of our advisor and its affiliates in connection with registering and marketing our shares; (ii) technology costs associated with the offering of our shares; (iii) issuer’s costs of conducting our training and education meetings; (iv) issuer’s costs of attending retail seminars conducted by participating broker-dealers; and (v) payment or reimbursement of bona fide due diligence expenses. Provided we have first raised $1,000,000 in this offering, we will pay sales commissions, the dealer manager fee and due diligence expense allowance for bona fide due diligence expenses and we shall reimburse the advisor and its affiliates for other organizational and offering expenses periodically during the offering period as we receive gross proceeds from the sale of our stock.
(4)	We will pay our advisor an acquisition fee equal to 2% of the gross proceeds from our primary offering upon receipt of the offering proceeds rather than at the time a property is acquired. As properties are acquired, the acquisition fees previously paid to the advisor will be allocated to the purchase price of the acquired properties. In the event any of the acquisition fees paid to our advisor are not ultimately allocated to the purchase price of a property, our advisor will refund the unallocated acquisition fees to us. If either party terminates or fails to renew the advisory agreement, our advisor must return acquisition fees not yet allocated to real estate investments we have made. In addition, we will reimburse our advisor for direct costs our advisor incurs and amounts it pays to third parties in connection with the selection and acquisition of a property, whether or not ultimately acquired. Under our charter, a majority of our independent directors would have to approve any increase in the acquisition fees payable to our advisor above 2% of gross proceeds from our primary offering. Our charter also limits our ability to purchase a property if the total of all acquisition fees and expenses relating to the purchase exceeds 6% of the contract purchase price.
(5)	The asset management fee we pay to our advisor is one-twelfth of 1% per month of the sum of the aggregate GAAP basis book carrying values of our assets invested, directly or indirectly, in equity interests in and loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves. Although we do not plan to use leverage in the acquisition of our real estate investments, our charter does not prohibit us from doing so. The use of leverage would have the effect of increasing the asset management fee as a percentage of the amount of equity contributed by investors because the asset management is calculated as a percentage of average invested assets, which includes amounts invested in real estate using borrowed funds.
(6)	Our advisor must reimburse us the amount by which our total annual operating expenses exceed the greater of 2% of our average invested assets or 25% of our net income unless a majority of our independent directors has determined that such excess expenses were justified based on unusual and non-recurring factors. “Average invested assets” means, for a specified period, the average of the aggregate book value of our assets invested, directly or indirectly, in equity interests in and loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period. “Operating expenses” means all costs and expenses incurred by us, as determined under generally accepted accounting principles, which in any way are related to our operation of our business, including advisory fees, but excluding (i) the expenses of raising capital such as organizational and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and listing of our stock, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad debt reserves, (v) acquisition fees and acquisition expenses, (vi) real estate commissions on the sale of property, and other expenses connected with the acquisition and ownership of real estate interests, mortgage loans, or other property (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair, and improvement of property) and (vii) any subordinated participation in net

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	sale proceeds, subordinated performance fee due upon termination or subordinated incentive fee due upon listing which may be paid by us.
(7)	Our charter does not impose a specific cap on property management or leasing agent fees. However, if we retain our advisor or an affiliate to manage or lease some of our properties, our charter requires that the management fee or leasing agent fee be a market-based fee which is what other management or leasing companies generally charge for the management or leasing of similar properties, which may include reimbursement for some or all the costs and expenses the advisor or its affiliates incur in managing or leasing the properties. Additionally, all property management fees and leasing commissions, including both those paid to our advisor or an affiliate and third parties, are subject to the limit on total operating expenses as described in footnote (6).
(8)	Although we are most likely to pay disposition fees to our advisor or an affiliate in the event of our liquidation, these fees may also be earned during our operational stage. We will only pay disposition fees to our advisor or its affiliate in connection with the disposition of a property if our advisor or its affiliate provides a substantial amount of the services (as determined by a majority of our directors, including a majority of our independent directors). Disposition fees for a property will be paid to our advisor or its affiliate at the time the property is sold, but in no event will the amount we pay for real estate commissions in connection with the sale of a property exceed the lesser of a competitive real estate commission or an amount equal to 6% of the sale price of such property or properties.

(9)  The market value of our outstanding stock for purposes of calculating the incentive fee due upon listing is measured by taking the average closing price or average of bid and asked price, as the case may be, during the consecutive 30-day period commencing twelve (12) months following listing and ending eighteen (18) months following listing during which the average closing price or average of bid and asked price of the stock is the highest. The incentive fee due upon listing is payable to our advisor during the thirty (30) day period following eighteen (18) months after listing. We have the option to pay the subordinated incentive listing fee in the form of stock, cash, a promissory note or any combination thereof. The form of payment will be determined by our board of directors. In the event the subordinated incentive listing fee is paid to our advisor as a result of the listing of our stock, we will not be required to pay our advisor any further subordinated participation in net sale proceeds or subordinated fee upon termination of advisory agreement.

If at any time our stock becomes listed on a national securities exchange or the Nasdaq National Market, we will negotiate in good faith with our advisor a fee structure appropriate for an entity with a perpetual life. A majority of our independent directors must approve the new fee structure negotiated with our advisor. In negotiating a new fee structure, our independent directors must consider all of the factors they deem relevant, including but not limited to:

      •  the size of the advisory fee in relation to the size, composition and profitability of our portfolio;

      •  the success of our advisor in generating opportunities that meet our investment objectives;

      •  the rates charged to other REITs and to investors other than REITs by advisors performing similar services;

      •  additional revenues realized by our advisor through its relationship with us;

      •  the quality and extent of service and advice furnished by our advisor;

      •  the performance of our investment portfolio, including income, conservation or appreciation of capital;

      •  frequency of problem investments and competence in dealing with distress situations; and

      •  the quality of our portfolio in relationship to the investments generated by our advisor for the account of other clients.

      Since our advisor and its affiliates are entitled to differing levels of compensation for undertaking different transactions on our behalf, such as the subordinated participation in net sale proceeds, our advisor

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has the ability to affect the nature of the compensation it receives by recommending different transactions. However, as our fiduciary, our advisor is obligated to exercise good faith in all its dealings with respect to our affairs. Our board of directors also has a responsibility to monitor the recommendations of our advisor and review the fairness of those recommendations. See “Management — The Advisory Agreement.”

STOCK OWNERSHIP

      The following table sets forth the beneficial ownership of our stock as of the date of this prospectus. To our knowledge, the sole stockholder beneficially owns our stock, has sole voting power and sole power to convey the stock.

		Number of Shares		Percent of All
Name of Beneficial Owner		Beneficially Owned		Shares
Terry G. Roussel			125		100	%
	4590 MacArthur Blvd., Suite 610 Newport Beach, CA 92660

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CONFLICTS OF INTEREST

      We are subject to various conflicts of interest arising out of our relationship with our advisor and its affiliates, some of whom serve as our officers and directors. We discuss these conflicts below and conclude this section with a discussion of the corporate governance measures we adopted to lessen some of the risks posed by these conflicts.

Our Advisor’s Interests in Other Real Estate Programs

General

      Cornerstone Industrial Properties, LLC, the member of our advisor, is the managing member of Cornerstone Realty Fund, LLC, a limited liability company which has investment objectives similar to ours. We expect that our advisor and its affiliates will organize other such partnerships and programs in the future. Our advisor and its affiliates have legal and financial obligations with respect to these programs that are similar to their obligations to us.

      As described in the “Prior Performance Summary,” affiliates of our advisor have sponsored eight private real estate programs with substantially identical investment objectives as ours all of which have sold their properties and are completed. An affiliate of our advisor is also sponsoring a public real estate program with substantially identical investment objectives as ours.

Allocation of Investment Opportunities

      We rely on our advisor to identify suitable investment opportunities. Other programs sponsored by our advisor or its affiliates also rely on our advisor for investment opportunities. Many investment opportunities would be suitable for us as well as other programs sponsored by our advisor or its affiliates. If our advisor directs an investment opportunity to another program sponsored by our advisor or its affiliates, it will offer the investment opportunity to the program for which the opportunity, in the discretion of our advisor, is most suitable. As a result, our advisor could direct attractive investment opportunities to other entities or even purchase them for its own account. We have no right to participate in any investment opportunity known to our advisor that our advisor has not recommended to us. See “Certain Conflict Resolution Procedures.”

Joint Ventures with Affiliates of Our Advisor

      We may enter into joint venture agreements with other programs sponsored by our advisor or its affiliates for the acquisition or improvement of properties. See “Investment Objectives and Criteria — Joint Venture Investments.” Our advisor and its affiliates may have conflicts of interest in determining which program should enter into any particular joint venture agreement. The co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. In addition, should any such joint venture be consummated, our advisor may face a conflict in structuring the terms of the relationship between our interests and the interests of the affiliated co-venturer and in managing the joint venture. Since our advisor and its affiliates will control both the affiliated co-venturer and, to a certain extent, us, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers.

Competition with Other Properties

      Conflicts of interest will exist to the extent that we may acquire properties in the same geographic areas where other programs sponsored by our advisor or its affiliates own properties. In such a case, a conflict could arise in the leasing of properties in the event that we and another program sponsored by our advisor or its affiliates were to compete for the same tenants in negotiating leases, or a conflict could arise in connection with the resale of properties in the event that we and another program sponsored by our advisor or its affiliates were to attempt to sell similar properties at the same time. Conflicts of interest may also exist at such time as we or any of our affiliates managing property on our behalf seek to employ

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contractors, building managers or other third parties. Our advisor will seek to reduce conflicts that may arise with respect to properties available for sale or rent by making prospective purchasers or tenants aware of all such properties. Our advisor will also seek to reduce conflicts relating to the employment of contractors or building managers by making prospective employees aware of all properties in need of their services. However, our advisor and its affiliates cannot fully avoid these conflicts because it may establish differing terms for sales or leasing of the various properties or differing compensation arrangements for personnel at different properties.

Allocation of Advisor’s Time

      We rely on our advisor and its affiliates for the day-to-day operation of our business. As a result of its interests in other programs and the fact that it will engage in other business activities, our advisor and its affiliates will have conflicts of interest in allocating their time between us and other programs sponsored by our advisor and its affiliates and activities in which they are involved. We estimate that over the life of the fund, our advisor and its affiliates will dedicate, on average, less than half of their time to our operations. However, our advisor believes that it and its affiliates will have sufficient personnel to discharge fully their responsibilities to all of the programs sponsored by our advisor and its affiliates and the ventures in which they are involved.

Receipt of Fees and Other Compensation by Our Advisor and Its Affiliates

      Our advisor and its affiliates will receive substantial fees from us. These compensation arrangements could influence our advisor’s advice to us, as well as the judgment of the affiliates of our advisor who may serve as our officers or directors. Among other matters, the compensation arrangements could affect their judgment with respect to:

•  the continuation, renewal or enforcement of our agreements with our advisor and its affiliates, including the advisory agreement and the dealer manager agreement;

•  subsequent offerings of equity securities by us, which may entitle Pacific Cornerstone Capital, Inc. to earn sales commissions and dealer manager fees and may entitle our advisor to additional acquisition and asset-management fees;

•  property sales, which may entitle our advisor to disposition fees and possible success-based participation in net sale proceeds;

•  property acquisitions from other programs sponsored by our advisor which may entitle our advisor to disposition fees and possible success-based sale fees in connection with its services for the seller;

•  whether and when we seek to list our stock on a national securities exchange or the Nasdaq National Market, which listing could entitle our advisor to a success-based listing fee but could also adversely affect its sales efforts for other programs depending on the price at which our stock trades; and

•  whether and when we seek to sell the company or its assets, which sale may entitle our advisor to a success-based fee but could also adversely affect its sales efforts for other programs depending upon the sales price for the company or its assets.

Our Board’s Loyalties to Existing and Future Programs Sponsored by Our Advisor

      Some of our directors are also directors of our advisor. The loyalties of those directors to other programs sponsored by our advisor and its affiliates may influence the judgment of our board when considering issues for us that may affect other programs sponsored by our advisor, such as the following:

•  We could enter into transactions with other programs sponsored by our advisor or its affiliates, such as property sales or acquisitions, joint ventures or financing arrangements. Decisions of the board or our independent directors regarding the terms of those transactions may be influenced by their loyalties to other programs sponsored by our advisor or its affiliates.

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•  A decision of the board or our independent directors regarding the timing of a debt or equity offering could be influenced by concerns that the offering would compete with an offering of other programs sponsored by our advisor or its affiliates.

•  A decision of the board or our independent directors regarding the timing of property sales could be influenced by concerns that the sales would compete with those of other programs sponsored by our advisor or its affiliates.

We could also face similar conflicts if our advisor or its affiliates sponsor additional programs and REITs. The duties and loyalties of our advisor and some of our directors to other entities do not reduce the fiduciary duty owed to our stockholders. See “Our Advisor’s Interest in Other Real Estate Programs — General.”

Fiduciary Duties Owed by Some of Our Affiliates to Our Advisor and Our Advisor’s Affiliates

      Terry G. Roussel is a director and executive officer of us and our advisor. Sharon C. Kaiser, Dominic J. Petrucci, Robert C. Peterson and Alfred J. Pizzurro are executive officers of both us and our advisor.

      Mr. Roussel and Mr. Pizzurro are also directors and officers of our dealer manager.

      Mr. Roussel, Mr. Peterson and Mr. Pizzurro are also directors and officers of Cornerstone Ventures, Inc., the managing member of Cornerstone Industrial Properties, LLC, the sole member of our advisor which is sponsoring Cornerstone Realty Fund, LLC. Ms. Kaiser and Mr. Petrucci are also officers of Cornerstone Ventures, Inc.

      As a result of these affiliations, our officers and directors owe fiduciary duties to these various other entities which may from time to time conflict with the fiduciary duties they owe to us.

Affiliated Dealer Manager

      Since Pacific Cornerstone Capital, Inc., our dealer manager, is an affiliate of our advisor, you will not have the benefit of an independent due diligence review and investigation of the type normally performed by an independent underwriter in connection with the offering of securities. See “Plan of Distribution.”

Affiliated Property Manager

      Our advisor does not currently provide property management or leasing services for the properties owned by programs sponsored by affiliates of our advisor. To the extent we retain our advisor or an affiliate to provide property management or leasing services for our properties in the future, we will not have the benefit of independent property management or leasing services. See “Management — Affiliated Companies.”

Lack of Separate Representation

      Preston Gates & Ellis LLP is counsel both to us and to our advisor and its affiliates, including Cornerstone Industrial Properties, LLC, Cornerstone Ventures, Inc. and Pacific Cornerstone Capital, Inc. There is a possibility that in the future the interests of the various parties may become adverse to one another and, under the Code of Professional Responsibility of the legal profession, Preston Gates & Ellis LLP may be precluded from representing any one or all of such parties. In the event a conflict arises between us and our advisor or between our advisor and any of our individual officers or directors, Preston Gates & Ellis LLP will not represent us. In some instances, such a conflict may not be readily apparent, and our legal counsel may inadvertently act in a manner that may be less beneficial to us than if we had separate representation. Our independent directors are authorized to engage separate counsel for advice when considering matters where the interests of our advisor and its affiliates could conflict with our interests.

Certain Conflict Resolution Procedures

Approval of Our Independent Directors

      In order to reduce or eliminate certain potential conflicts of interest, our charter provides that transactions involving conflicts of interest be approved by a majority of our independent directors. Serving

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on the board of, or owning an interest in, another program sponsored by our advisor will not, by itself, preclude a director from being an independent director. Our independent directors committee, which is authorized to retain its own legal and financial advisors at our expense, is empowered to act on any matter permitted under Maryland law provided that it first determines by a majority vote that the matter at issue is such that the exercise of independent judgment by directors who are not independent directors could reasonably be compromised. Those conflict of interest matters that we cannot delegate to a committee under Maryland law must be acted upon by both the board of directors and our independent directors. Among the matters we expect our independent directors to act upon are:

•  the continuation, renewal or enforcement of our agreements with our advisor and its affiliates, including the advisory agreement and the dealer manager agreement;

•  review of our investment objectives and policies with sufficient frequency and at least annually to determine that the policies being followed are in the best interests of our stockholders;

•  transactions with affiliates;

•  payment of fees and expenses, and borrowing of funds, in excess of the limits prescribed in our charter;

•  whether and when we seek to list our common stock on a national securities exchange or the Nasdaq National Market; and

•  whether and when we seek to sell the company or its assets.

Other Charter Provisions Relating to Conflicts of Interest

      Our charter contains many other restrictions relating to conflicts of interest including the following:

      Advisor Compensation. Our independent directors will evaluate at least annually whether the compensation that we contract to pay to our advisor and its affiliates is reasonable in relation to the nature and quality of services performed and that such compensation is within the limits prescribed by the charter. Our independent directors will supervise the performance of our advisor and its affiliates and the compensation we pay to them to determine that the provisions of our compensation arrangements are being carried out. This evaluation will be based on the factors set forth below as well as any other factors deemed relevant by our independent directors:

•  the amount of the fees paid to our advisor and its affiliates in relation to the size, composition and performance of our investments;

•  the success of our advisor in generating appropriate investment opportunities;

•  the rates charged to other REITs and others by advisors performing similar services;

•  additional revenues realized by our advisor and its affiliates through their relationship with us, including whether we pay them or they are paid by others with whom we do business;

•  the quality and extent of service and advice furnished by our advisor and its affiliates;

•  the performance of our investment portfolio;

•  the frequency of problem investments and competence in dealing with distress situations; and

•  the quality of our portfolio relative to the investments generated by our advisor for its own account and for its other clients.

      We can only pay our advisor a disposition fee in connection with the sale of a property if our advisor provides a substantial amount of the services in the effort to sell the property and the disposition fee does not exceed 3% of the sales price of the property. Moreover, the disposition fee, when added to all other real estate commissions paid to unaffiliated parties in connection with the sale, may not exceed the lesser of a competitive real estate commission or 6% of the sales price of the property.

      Term of Advisory Agreement. Each contract for the services of our advisor may not exceed one year, although there is no limit on the number of times that a particular advisor may be retained. Our independent directors or our advisor may terminate the advisory agreement with our advisor without cause

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or penalty on 60 days written notice. Upon termination of the advisory agreement, we are required to pay our advisor the subordinated performance fee due upon termination. This fee is based on the appraised value of our assets less our liabilities on the date the advisory agreement is terminated.

      Our Acquisitions. We will not purchase or lease properties in which our advisor, our directors or officers or any of their affiliates has an interest without a determination by a majority of our directors, including a majority of our independent directors, that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the property to the affiliated seller or lessor unless there is substantial justification for the excess amount. In no event will we acquire any such property at an amount in excess of its current appraised value as determined by an independent expert selected by our independent directors not otherwise interested in the transaction.

      Mortgage Loans Involving Affiliates. Our charter prohibits us from investing in or making mortgage loans in which the transaction is with our advisor or our directors or officers or any of their affiliates unless an independent expert appraises the underlying property. We must keep the appraisal for at least five years and make it available for inspection and duplication by any of our stockholders. In addition, we must obtain a mortgagee’s or owner’s title insurance policy or commitment as to the priority of the mortgage or the condition of the title. Our charter prohibits us from making or investing in any mortgage loans that are subordinate to any other mortgage or equity interest.

      Other Transactions Involving Affiliates. A majority of our independent directors must conclude that all other transactions, including joint ventures, between us and our advisor, our officers or directors or any of their affiliates are fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties.

      Limitation on Operating Expenses. Our advisor must reimburse us the amount by which our total annual operating expenses exceed the greater of 2% of our average invested assets or 25% of our net income unless a majority of our independent directors have determined that such excess expenses were justified based on unusual and non-recurring factors. “Average invested assets” means, for a specified period, the average of the aggregate book value of our assets invested, directly or indirectly, in equity interests in and loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period. “Operating expenses” means all costs and expenses incurred by us, as determined under generally accepted accounting principles, which in any way are related to our operation of our business, including advisory fees, but excluding (i) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and listing of our stock, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad debt reserves, (v) acquisition fees and acquisition expenses, (vi) real estate commissions on the sale of property, and other expenses connected with the acquisition and ownership of real estate interests, mortgage loans, or other property (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair, and improvement of property) and (vii) any subordinated participation in net sale proceeds, subordinated performance fee due upon termination or subordinated incentive listing fee due upon termination which may be paid to us.

      Issuance of Options to Certain Affiliates. Our charter prohibits the issuance of options to purchase our stock to our advisor, our directors or officers or any of their affiliates (i) on terms more favorable than we offer our stock to the general public or (ii) in excess of an amount equal to 10% of our outstanding stock on the date of grant.

      Repurchase of Our Stock. Our charter prohibits us from paying a fee to our advisor or our directors or officers or any of their affiliates in connection with our repurchase of our stock.

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      Loans. We will not make any loans to our advisor or to our directors or officers or any of their affiliates. In addition, we will not borrow from these affiliates unless a majority of our independent directors approves the transaction as being fair, competitive and commercially reasonable, and no less favorable to us than comparable loans between unaffiliated parties. These restrictions on loans will only apply to advances of cash that are commonly viewed as loans, as determined by the board of directors. By way of example only, the prohibition on loans would not restrict advances of cash for legal expenses or other costs incurred as a result of any legal action for which indemnification is being sought, nor would the prohibition limit our ability to advance reimbursable expenses incurred by directors or officers or our advisor or its affiliates for items such as travel expenses or to allow our officers to use company credit cards for our business purposes.

      Reports to Stockholders. Our charter requires that we prepare an annual report and deliver it to our stockholders within 120 days after the end of each fiscal year. Among the matters that must be included in the annual report are:

•  financial statements prepared in accordance with generally accepted accounting principles which are audited and reported on by our independent certified public accountants;

•  the ratio of the costs of raising capital during the year to the capital raised, if any;

•  the aggregate amount of advisory fees and the aggregate amount of other fees paid to our advisor and any affiliate of our advisor by us or third parties doing business with us during the year;

•  our total operating expenses for the year, stated as a percentage of our average invested assets and as a percentage of our net income and funds from operations;

•  a report from our independent directors that our policies are in the best interests of our stockholders and the basis for such determination; and

•  separately stated, full disclosure of all material terms, factors and circumstances surrounding any and all transactions involving us and our advisor, a director or any affiliate thereof during the year, including the comments and conclusions of the independent directors concerning the fairness of the transactions after fulfilling their specific duty of examining the transactions.

      Voting of Stock Owned by Affiliates. Before becoming a stockholder, our advisor or a director or officer or any of their affiliates must agree not to vote their stock regarding (i) the removal of any of these affiliates or (ii) any transaction between them and us.

      Ratification of Charter Provisions. Our board of directors, including our independent directors, have reviewed and ratified our charter by the vote of a majority of their respective members.

Allocation of Investment Opportunities

      When our advisor presents an investment opportunity to a program sponsored by our advisor or its affiliates, it will offer the opportunity to the program for which the investment opportunity is most suitable. This determination is made by our advisor. However, our advisory agreement requires that our advisor make this determination in a manner that is fair without favoring any other program sponsored by our advisor or its affiliates. In determining the program for which an investment opportunity would be most suitable, our advisor will consider the following factors:

•  the investment objectives and criteria of each program;

•  the cash requirements of each program;

•  the effect of the acquisition on diversification of each program’s investments;

•  the policy of each program relating to leverage of properties;

•  the anticipated cash flow of each program;

•  the income tax effects of the purchase on each program;

•  the size of the investment; and

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•  the amount of funds available to each program and the length of time such funds have been available for investment.

      In the event that an investment opportunity becomes available that is equally suitable for us and one or more other programs, then our advisor may offer the investment opportunity to the entity that has had the longest period of time elapse since it was offered an investment opportunity. If a subsequent event or development, such as a delay in the closing of a property, causes any such investment, in the opinion of our advisor, to become more appropriate for another program, our advisor may offer the investment to another program.

      Our advisory agreement requires that our advisor promptly inform us of any material deviation from the allocation guidelines described above. Our advisor’s success in generating investment opportunities for us and its fair allocation of opportunities among programs sponsored by our advisor are important criteria in the determination by our independent directors to continue or renew our annual contract with our advisor. Our independent directors have a duty to ensure that our advisor fairly applies its method for allocating investment opportunities among the programs sponsored by our advisor.

INVESTMENT OBJECTIVES AND ACQUISITION POLICIES

Investment Objectives

      Our investment objectives are to:

•  preserve stockholder capital by owning and operating real estate on an all-cash basis with no permanent financing;

•  purchase properties with the potential for capital appreciation to our stockholders;

•  purchase income-producing properties which will allow us to pay cash distributions to our stockholders at least quarterly, if not more frequently; and

•  provide liquidity to our stockholders within the shortest reasonable time necessary to accomplish the above objectives.

      We cannot assure you that we will attain these objectives or that our capital will not decrease. We may not change our investment policies or investment restrictions in a manner that adversely affect the rights, preferences and privileges of our stockholders, except upon approval of a majority of our independent directors. Decisions relating to the purchase or sale of properties will be made by our advisor, subject to approval by our board of directors. See “Management” for a description of the background and experience of the directors and executive officers.

      We may own properties through joint ventures. This is one of the ways we may diversify the portfolio of properties we own in terms of geographic region, property type and tenant industry group. Joint ventures will also allow us to acquire an interest in a property without requiring that we fund the entire purchase price. In determining whether to recommend a particular joint venture investment, our advisor will evaluate the real property which the joint venture owns or will acquire using the same criteria for the selection of our other real estate investments.

      Within five years from the closing of this offering, our board of directors will take one or more of the following actions to provide enhanced liquidity for our stockholders:

•  modify our stock repurchase program to allow us to use proceeds from the sale of our properties to redeem shares;

•  list our stock for trading on a national securities exchange or the Nasdaq National Market;

•  seek stockholder approval to begin an orderly liquidation of our assets and distribute the available proceeds of such sales to our stockholders; or

•  seek stockholder approval of another liquidity event such as a sale of our assets or a merger with another entity.

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Investment Strategy

      Large institutional investors have proven how to build a successful real estate portfolio. They generally start with a foundation of “core” holdings. “Core” holdings are generally existing, high quality properties owned “all-cash” free and clear of debt. We believe that “core” holdings are necessary to help investors build the base of their investment portfolio. That is why our primary investment focus is to acquire investment real estate “all cash” with no permanent financing.

      All cash real estate investments add a layer of safety to conservative real estate investment which we believe cannot be matched by any other strategy. By owning and operating properties on an “all-cash” basis, risk of foreclosure of mortgage debt is eliminated. Following acquisition of “core” real property investments, many large institutional investors then make “core plus”, “valued added” and “opportunistic” real property investments each of which has increasing levels of debt, risk and yield.

Acquisition Policies

Primary Investment Focus

      We expect to use substantially all of the net proceeds from this offering to invest in investment real estate including multi-tenant industrial properties that are:

•  owned and operated on an all-cash basis with no permanent financing;

•  high-quality, existing, and currently producing income;

•  leased to a diversified tenant base; and

•  leased with overall shorter term operating type leases, allowing for annual rental increases and greater potential for capital growth.

      We intend to seek potential property acquisitions meeting the above criteria and which are located in major metropolitan markets throughout the United States. Among the most important criteria we expect to use in evaluating the markets in which we purchase properties are:

•  high population;

•  historically high levels of tenant demand and lower historic investment volatility for type of property being acquired;

•  high historical and projected employment growth;

•  low household income volatility and low general economic volatility;

•  a scarcity of land for new competitive projects; and

•  sound real estate fundamentals, such as low vacancy rates and strong rent rate potential.

      The markets in which we invest may not meet all of these criteria and the relative importance that we assign to any one or more of these criteria may differ from market to market or change as general economic and real estate market conditions evolve. We may also consider additional important criteria in the future.

      Multi-tenant industrial properties generally offer a combination of both warehouse and office space adaptable to a broad range of tenants and uses, and typically cater to local and regional businesses. Multi-tenant industrial properties comprise one of the major segments of the commercial real estate market and tenants in these properties come from a broad spectrum of industries including light manufacturing, assembly, distribution, import/ export, general contractors, telecommunications, general office/ warehouse, wholesale, service, high-tech and other fields. These properties diversify revenue by generating rental income from multiple businesses in a variety of industries instead of relying on one or two large tenants.

      Our advisor believes that investment opportunities in multi-tenant industrial properties are ordinarily not readily available to investors other than large institutional investors and experienced real estate operators with specialized knowledge and experience in a specific geographic area. Although we intend to focus on multi-tenant industrial properties, we may also invest in other types of properties.

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Property Selection

      Our advisor, through its affiliates, will have experienced staff engaged in the selection and evaluation of properties that we may acquire.

      We will purchase properties upon the approval of our board of directors based on the recommendation of our advisor. In making its recommendation, our advisor will examine and evaluate some or all of the following:

•  functionality of the physical improvements at the property;

•  historical financial performance of the property;

•  current market conditions for leasing space at the property;

•  proposed purchase price, terms, and conditions;

•  potential cash flow and profitability of the property;

•  estimated cost to develop a new competitive property within the immediate market area;

•  demographics of the area in which the property is located;

•  demand for space by business tenants in the immediate market area;

•  rental rates and occupancy levels at competing industrial properties in the immediate area;

•  historic tenant demand for space at the property;

•  current market versus actual rental rates at the property and in the immediate area;

•  operating expenses being incurred and expected to be incurred at the property;

•  potential capital improvements and leasing commissions reasonably expected to be expended;

•  a review of the terms of each tenant lease in effect at the property;

•  an evaluation of title and the obtaining of satisfactory title insurance;

•  an evaluation of a current appraisal conducted by a qualified independent appraiser; and

•  an evaluation of any reasonably ascertainable risks such as environmental contamination.

      Our advisor brings us the same expertise that affiliates of our advisor have exercised in the accumulation and operation of their joint venture properties and prior programs and funds.

Other Potential Investments

      While we intend to invest in multi-tenant industrial properties, we have the ability to invest in any type of real estate investment that we believe to be in the best interests of our stockholders, including other real estate funds or REITs, mortgage funds, mortgage loans and sale lease-backs. Furthermore, there are no restrictions on the number or size of properties we may purchase or on the amount or proportion of net proceeds of this offering that we may invest in a single property. Although we can invest in any type of real estate investment, our charter restricts certain types of investments. These limitations are described below under “Investment Limitations.” We do not intend to make loans to other persons (other than mortgage loans described below), to underwrite securities of other issuers or to engage in the purchase and sale of any types of investments other than real estate investments.

Mortgage Loans

      We generally do not intend to make mortgage loans or to invest in mortgages, although we may do so within the limits prescribed by our charter. Even if we have offering proceeds that we cannot invest in properties immediately, we do not intend to invest those proceeds in mortgages. We do not have a goal of

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investing any particular percentage of our assets in mortgages. We may invest in mortgages or make mortgage loans in the following circumstances:

•  when a property owner requires us to make a mortgage loan as a condition to our purchase of a property;

•  if we indirectly acquire a mortgage by purchasing an entity, such as a REIT or other real estate company, that also owns a mortgage; and

•  if we acquire a mortgage with the view of acquiring the underlying property through foreclosure.

Investment Strategies and Decisions

      Our advisor will make recommendations to our board of directors, which will approve or reject all proposed property acquisitions. Our independent directors will review our investment policies at least annually to determine whether these policies continue to be in the best interests of our stockholders.

      We will purchase properties based on the decision of our board of directors after an examination and evaluation by our advisor of many factors including but not limited to the functionality of the property, the historical financial performance of the property, current market conditions for leasing space at the property, proposed purchase price, terms and conditions, potential cash flows and potential profitability of the property. The number of properties that we will purchase will depend on the amount of funds we raise in this offering and upon the price we pay for the properties we purchase. To identity properties that best fit our investment criteria, our advisor will study regional demographics and market conditions and work through local commercial real estate brokers.

Conditions to Closing Our Acquisitions

      We will not purchase any property unless and until the structural soundness and the operating systems of each building have been inspected by an experienced commercial construction engineer and we obtain at least a Phase I environmental assessment and history for each property purchased and are sufficiently satisfied with the property’s environmental status. In addition, we will generally condition our obligation to close the purchase of any investment on the delivery and verification of certain documents from the seller or other independent professionals, including, where appropriate:

•  property surveys;

•  building plans and specifications, if available;

•  financial statements of the properties;

•  proof of marketable title, subject to such liens and encumbrances as are acceptable to our advisor; and

•  liability and title insurance policies.

Improvement and Development of Properties

      While we do not intend to develop properties, we may invest in properties on which improvements are to be constructed or completed. Development of properties is subject to risks relating to a builder’s ability to control construction costs or to build in conformity with plans, specifications and timetables. We may help ensure performance by the builders of properties that are under construction at the price contracted by obtaining either a performance bond or completion bond. As an alternative to a performance bond or completion bond, we may rely upon the substantial net worth of the contractor or developer or a personal guarantee provided by a high net worth affiliate of the person entering into the construction or development contract.

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Leases and Tenant Improvements

      The properties we acquire will generally have operating type leases. Operating type leases generally have either gross or modified gross payment terms. Under gross leases, the landlord pays all operating expenses of the property. Under modified gross leases, the tenant reimburses the landlord for certain operating expenses. A “net” lease, which is generally not considered an operating-type lease, provides that the tenant pays or reimburses the owner for all or substantially all property operating expenses. As landlord, we will generally have responsibility for certain capital repairs or replacement of specific structural components of a property such as the roof, heating and air conditioning systems, the interior floor or slab of the building as well as parking areas.

      We expect that a portion of any tenant improvements required to be funded by the landlord for newly acquired properties will be funded from the net proceeds of this offering. Additionally, when a tenant at one of our properties vacates its space, it is likely that we will be required to expend funds for tenant improvements and refurbishments to the vacated space in order to attract new tenants. If we do not have adequate cash on hand to fund tenant improvements and refurbishments, we may use interim debt financing in order to fulfill our obligations under lease agreements with new tenants.

Joint Ventures and Other Arrangements

      We may acquire some of our properties in joint ventures, some of which may be entered into with affiliates of our advisor. We may also enter into joint ventures, general partnerships, co-tenancies and other participations with real estate developers, owners and others for the purpose of owning and leasing real properties. (See “Conflicts of Interest.”) Among other reasons, we may want to acquire properties through a joint venture with third parties or affiliates in order to diversify our portfolio of properties in terms of geographic region, property type and tenant industry group. Joint ventures may also allow us to acquire an interest in a property without requiring that we fund the entire purchase price. In addition, certain properties may be available to us only through joint ventures. In determining whether to recommend a particular joint venture, the advisor will evaluate the real property which such joint venture owns or is being formed to own under the same criteria described elsewhere in this prospectus. These entities may employ debt financing. (See “Borrowing Policies” below.)

      At such time as the advisor believes that a reasonable probability exists that we will enter into a joint venture for the acquisition of a specific property, this prospectus will be supplemented to disclose the terms of such proposed investment transaction. We expect that this prospectus will normally be supplemented upon the signing of a legally binding purchase agreement for the acquisition of a specific property and the satisfaction of all major contingencies contained in such purchase agreement. However, a supplement may be issued before or after any such time, depending upon the particular circumstances surrounding each potential investment. You should not rely upon our initial disclosure of any proposed transaction as an assurance that we will ultimately consummate the proposed transaction or that the information we provide in any supplement to this prospectus concerning any proposed transaction will not change after the date of the supplement.

      We may enter into joint ventures with affiliates of the advisor for the acquisition of properties, but only provided that:

•  A majority of our directors, including a majority of our independent directors, approve the transaction as being fair and reasonable to us; and

•  The investment by us and such affiliate are on substantially the same terms and conditions.

      To the extent possible and if approved by the board of directors, including a majority of our independent directors, we will attempt to obtain a right of first refusal or option to buy if such venture

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partner elects to sell its interest in the property held by the joint venture. In the event that the venture partner were to elect to sell property held in any such joint venture, however, we may not have sufficient funds to exercise our right of first refusal to buy the venture partner’s interest in the property held by the joint venture. Entering into joint ventures with affiliates of our advisor will result in certain conflicts of interest. (See “Conflicts of Interest — Joint Ventures with Affiliates of the Advisor.”)

Borrowing Policies

      We intend to be an all-cash REIT which will own and operate our properties with no permanent indebtedness. Generally, we will pay the entire purchase price of each property in cash or with equity securities, or a combination of each. Being an all-cash REIT mitigates the risks associated with mortgage debt, including the risk of default on the mortgage payments and a resulting foreclosure of a particular property.

      During the offering period, we intend to use temporary financing to facilitate acquisitions of properties in anticipation of receipt of offering proceeds. We will endeavor to repay any debt financing promptly upon receipt of proceeds in this offering. To the extent sufficient proceeds from this offering are unavailable to repay such debt financing within a reasonable time as determined by our board of directors, we may sell properties or raise equity capital to repay the debt so that we will own our properties all-cash, with no permanent acquisition financing.

      We may incur indebtedness for working capital requirements, tenant improvements, capital improvements, leasing commissions and to make distributions including but not limited to those necessary in order to maintain our qualification as a REIT for federal income tax purposes. We will endeavor to borrow funds on an unsecured basis but we may secure indebtedness with some or all of our portfolio of properties if a majority of our independent directors determine that it is in the best interests of us and our stockholders.

      Our advisor may create a separate, affiliated entity which will purchase properties using interim acquisition financing and hold them for us pending our ability to acquire the properties on an “all-cash” basis. Any properties that we purchase from the affiliated acquisition holding company will meet our investment criteria and must be approved for purchase by our board of directors, including a majority of our independent directors, for a purchase price which includes the costs associated with holding the property.

      Generally accepted accounting principles may require that the financial statements of the acquisition holding company be consolidated with our financial statements. If this is the case, assets and liabilities of the acquisition holding company will be reflected on our balance sheet. If there is no requirement that the acquisition holding company’s financial statements be consolidated with our financial statements, we may nevertheless be required to disclose information about the transactions of the acquisition holding company as off-balance sheet arrangements under the rules of the Securities and Exchange Commission.

      We may also acquire properties encumbered with existing financing which cannot be immediately repaid. To the extent we cannot repay the financing that encumbers these properties within a reasonable time as determined by a majority of our independent directors, we intend to sell properties or raise equity capital to pay debt in order to maintain our all-cash status or reserve an amount of cash sufficient to repay the loan to mitigate the risks of foreclosure.

      We may invest in joint venture entities that borrow funds or issue senior equity securities to acquire properties, in which case our equity interest in the joint venture would be junior to rights of the lender or preferred stockholders. In some cases, our advisor may control the joint venture.

      If we list our stock on a national stock exchange or the Nasdaq National Market, we may thereafter change our strategy and begin to use leverage in the acquisition of properties.

      Our charter limits our borrowings to the equivalent of 75% of our cost, before deducting depreciation or other non-cash reserves, of all our assets unless any excess borrowing is approved by a majority of our independent directors and is disclosed to our stockholders in our next quarterly report with an explanation

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from our independent directors of the justification for the excess borrowing. While there is no limitation on the amount we may borrow for the purchase of any single property, we intend to repay such debt within a reasonable time or raise additional equity capital or sell properties in order to maintain our all-cash status. See “Plan of Operation — Liquidity and Capital Resources.”

Selling Policies

      Cornerstone-related entities have historically held properties an average of approximately 4.4 years, but we may hold properties for a longer or shorter period of time than this historic average. These properties were purchased, owned and operated during different economic cycles. We will sell properties when we believe it would be in our best interests, based on prevailing economic conditions and other relevant factors.

      Our goal in selling properties will be to achieve maximum capital appreciation, although we cannot assure you that this objective will be realized. Our general policy will be to sell our properties for all cash. When we sell a property, we may, under limited circumstances, lend the purchaser a portion of the purchase price, provided that the aggregate amount of all mortgage loans outstanding on the property, including the loan we may make to the purchaser, may not exceed eighty-five percent (85%) of the appraised value of the property as determined by an independent appraiser, unless substantial justification exists. In these cases, our taxable income may exceed the cash received in the sale. The terms of payment will be affected by custom in the locality of the property being sold and the then-prevailing economic conditions.

      We may sell properties to our advisor or its affiliates if such sale is approved by a majority of our directors (including a majority of independent directors), not otherwise interested in such transaction, as being fair and reasonable to us. We may also lease assets to our advisor, any director or any of their affiliates if approved by a majority of our directors (including a majority of independent directors), not otherwise interested in such transaction, as being fair and reasonable to us.

Investment Limitations

      Our charter places numerous limitations on how we may invest our funds or issue securities prior to the listing of our stock for trading on a national securities exchange or the Nasdaq National Market. These limitations cannot be changed unless our stockholders approve an amendment to our charter. Unless our charter is amended, we will not:

•  invest in unimproved property or mortgage loans on unimproved property;

•  make or invest in mortgage loans unless we obtain an appraisal of the underlying property, except for those mortgage loans insured or guaranteed by a government agency or government; and except in connection with the sale or other disposition of a property;

•  make or invest in mortgage loans on any one property if the aggregate amount of all mortgage loans on such property would exceed 85% of the appraised value of such property, unless substantial justification exists for exceeding such limit because of the presence of other underwriting criteria;

•  make or invest in construction loans;

•  invest in indebtedness secured by a mortgage on real property which is subordinate to the lien of other indebtedness;

•  make or invest in any mortgage loans that are subordinate to any mortgage, other indebtedness or equity interest of our advisor, our directors, our sponsor and any affiliates;

•  invest in a property if the related acquisition fees and acquisition expenses are not reasonable or exceed 6% of the purchase price of the property; provided that we may make the investment if a majority of our independent directors determine that the transaction is commercially competitive, fair and reasonable to us;

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•  invest in equity securities, unless a majority of our board, including a majority of independent directors, approves such investment as being fair, competitive and commercially reasonable,

•  underwrite the securities of other issuers;

•  invest in real estate contracts of sale, otherwise known as land sale contracts;

•  invest in commodities or commodity futures contracts, except for futures contracts when used solely for the purpose of hedging in connection with our ordinary business of investing in real estate assets and mortgages;

•  issue equity securities on a deferred payment basis or other similar arrangement;

•  issue debt securities in the absence of adequate cash flow to cover debt service;

•  issue equity securities that are assessable after we have received the consideration for which our board of directors authorized their issuance; or

•  issue equity securities redeemable solely at the option of the holder, which restriction has no effect on our proposed stock repurchase program or the ability of our operating partnership to issue redeemable partnership interests.

      In addition, our charter includes many other investment limitations in connection with conflict of interest transactions, which limitations are described above under “Conflicts of Interest.” Our charter also includes restrictions on roll-up transactions, which are described under “Description of Stock” below.

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PLAN OF OPERATION

General

      We have not commenced operations as of the date of this prospectus. Once we receive subscriptions for the minimum of $1,000,000, subscription proceeds will be released to us and we will commence making investments in properties and other assets after we pay sales commissions, dealer manager fees and due diligence expense allowance, and make reimbursements for other organization and offering expenses. See “Estimated Use of Proceeds.” We have not entered into any arrangements to purchase specific properties with the net proceeds from this offering. The number of properties we may acquire will depend upon the amount of stock sold and the resulting amount of the net proceeds available for investment in properties.

      We may, but are not required to, establish reserves out of cash flow generated by operating properties or out of net sale proceeds from the sale of our properties. We may also establish reserves from gross proceeds of this offering but we are not currently planning to do so. We expect that these reserves, if any, would be used for primarily for capital improvements, maintenance and repair of properties, tenant improvements and leasing commissions.

Liquidity and Capital Resources

      We are dependent on our advisor to fund our offering and organizational activities. As of the date of this prospectus, we are relying on our advisor because we have not raised sufficient capital to pay these expenses and because the amount we can spend on organization and offering expenses (including sales commissions, dealer manager fee and due diligence expense allowance) is limited to 15% of the gross proceeds from this offering. Our advisor will advance us money for organization and offering expenses or pay those expenses on our behalf. Our advisor will not charge us interest on these advances. We will repay these advances and reimburse our advisor for expenses paid on our behalf using the gross proceeds of this offering subject to the 15% limitation described above. Our advisor will pay all of our organization and offering expenses which are in excess of the 15% limitation.

      We will not rely on advances from our advisor to acquire properties but our advisor and its affiliates may loan funds to special purposes entities which may acquire properties on our behalf pending our raising sufficient proceeds from this offering to purchase the properties from the special purpose entity.

      Our advisor is newly formed, has limited capitalization, has incurred losses since its inception and is continuing to incur significant losses. Our advisor must raise funds through the sale of its own debt or equity securities, or obtain financial support from its affiliates or sole member, to obtain the cash necessary to provide these advances. There can be no assurance as to the amount or timing of our advisor’s receipt of funds. Adverse changes in the financial condition of our advisor could adversely affect us. If our advisor’s financial condition affects the amount of funds available to us for offering and organizational activities, our ability to raise funds in this offering could be adversely affected. Cornerstone Industrial Properties, LLC, the sole member of our advisor, has limited capitalization, has incurred significant losses since its inception and is continuing to incur significant losses.

      We will require funds for property acquisitions, either directly or through investment interests, for paying operating expenses and distributions, and for paying interest on our outstanding indebtedness, if any. Generally, cash from operations will be used to pay for items other than property acquisitions, and the proceeds from the public offerings of our stock and debt financings, if any, will be used to fund property acquisitions.

      We intend to own our properties all-cash, with no permanent financing by paying the entire purchase price of each property in cash, or with our equity securities, or equity securities of our operating partnership, or a combination thereof. During the offering period, we may use temporary debt financing to facilitate our acquisitions of properties in anticipation of receipt of offering proceeds. We will endeavor to repay any temporary acquisition debt financing promptly upon receipt of proceeds in this

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offering. To the extent sufficient proceeds from this offering are unavailable to repay such debt financing within a reasonable time as determined by our board of directors, we will endeavor to raise additional equity or sell properties to repay such debt so that we will own our properties all-cash with no permanent financing. In the event that this offering is not fully sold, our ability to diversify our investments may be diminished.

      At certain times during this offering, there may be a delay between the sale of our stock and our purchase of properties, which could result in a delay in our stockholders receiving distributions generated from our investment operations, if any. To avoid this delay, we may arrange interim bridge financing.

      During the period between the execution of the purchase contract and the satisfaction of any closing conditions, such as completion of financing arrangements, if any, review of the title insurance commitment, an appraisal, an environmental analysis and other due diligence, we may decide to temporarily invest any unused proceeds from the offering in certain investments that could yield lower returns than the properties. These lower returns may affect our ability to make distributions.

      Potential future sources of capital include proceeds from future equity offerings, proceeds from secured or unsecured financings from banks or other lenders, proceeds from the sale of properties and undistributed funds from operations. If necessary, we may use financings or other sources of capital at the discretion of our board of directors.

Results of Operations

      We are in our organizational stage and have not commenced significant operations as of the date of this prospectus. Operations will commence when we have sold at least $1,000,000 of our common stock to the public in this offering. Our management is not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, which may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition and operations of real properties, other than those referred to in this prospectus.

Inflation

      Although the real estate market has not been affected significantly by inflation in the recent past due to the relatively low inflation rate, we expect that the majority of our tenant leases will include provisions that would protect us to some extent from the impact of inflation. Where possible, our leases will include provisions for rent escalations and partial reimbursement to us of expenses. Our ability to include provisions in the leases that protect us against inflation is subject to competitive conditions that vary from market to market.

REIT Status

      We intend to make an election under Section 856(c) of the Internal Revenue Code to be taxed as a REIT, beginning with the taxable year ended December 31, 2005. If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be able to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Failure to qualify as a REIT could materially and adversely affect our net income. We believe, however, that we are organized and will operate in a manner that will allow us to qualify for treatment as a REIT for federal income tax purposes during the year ended December 31, 2005, and we intend to continue to operate so as to remain qualified as a REIT for federal income tax purposes.

      We will monitor the various qualification tests that we must meet to maintain our status as a REIT. Ownership of our stock will be monitored to ensure that no more than 50% in value of our outstanding stock is owned, directly or indirectly, by five or fewer individuals at any time after the first taxable year for which we make an election to be taxed as a REIT. We will also determine, on a quarterly basis, that the

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gross income, asset and distribution tests as described in the section of this prospectus entitled “Federal Income Tax Considerations — Requirements for Qualification” are met.

      Our charter requires our board of directors to use commercially reasonable efforts to take such actions as are necessary, and provides that our board of directors may take such actions as it deems desirable (in its sole discretion), to preserve our REIT status. However, if our board of directors determines, by a vote of two-thirds of our directors, that it no longer is in the best interests of the company to qualify as a REIT, the board of directors may terminate our REIT status.

Critical Accounting Policies

      We have established accounting policies which conform to generally accepted accounting principles (GAAP). Preparing financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied or different amounts of assets, liabilities, revenues and expenses would have been recorded, thus resulting in a different presentation of the financial statements or different amounts reported in the financial statements. Additionally, other companies may use different estimates that may impact comparability of our results of operations to those of companies in similar businesses.

      Following is a discussion of the accounting policies that we consider to be most important once we commence operations because they may require complex judgment in their application or require estimates about matters that are inherently uncertain.

      Management believes that some of our most important accounting policies will include the accounting for lease revenues (including straight-line rent), the regular evaluation of whether the value of a real estate asset has been impaired, real estate purchase price allocations and the accounting for our hedging activities, if any. Each of these items involves estimates that require management to make judgments that are subjective in nature. Management relies on its experience, collects historical data and current market data, and analyzes these assumptions in order to arrive at what it believes to be reasonable estimates. Under different conditions or assumptions, materially different amounts could be reported related to the accounting policies described below. In addition, application of these accounting policies involves the exercise of judgments on the use of assumptions as to future uncertainties and, as a result, actual results could materially differ from these estimates.

Revenue Recognition and Valuation of Receivables

      Our revenues, which will be comprised largely of rental income, will include rents reported on a straight-line basis over the initial term of the lease. Since our leases may provide for rental increases at specified intervals, we will be required to straight-line the recognition of revenue, which will result in the recording of a receivable for rent not yet due under the lease terms. Accordingly, our management must determine, in its judgment, to what extent the unbilled rent receivable applicable to each specific tenant is collectible. We will review unbilled rent receivable on a quarterly basis and take into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of unbilled rent with respect to any given tenant is in doubt, we would be required to record an increase in our allowance for doubtful accounts or record a direct write-off of the specific rent receivable, which would have an adverse effect on our net income for the year in which the reserve is increased or the direct write-off is recorded and would decrease our total assets and stockholders’ equity.

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Depreciation of Real Property Assets

      We will be required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. We anticipate the estimated useful lives of our assets by class to be as follows:

Building	39 years
Building improvements	10-25  years
Land improvements	20-25  years
Tenant improvements	Lease term

      In the event that inappropriate useful lives or methods are used for depreciation, our net income would be misstated.

Evaluation of Possible Impairment of Real Property Assets

      We will continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate assets, including those held through joint ventures, may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of real estate assets may not be recoverable, we will assess the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we will adjust the real estate assets to the fair value and recognize an impairment loss.

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

Allocation of Purchase Price of Acquired Assets

      Once we acquire real properties, our policy will be to allocate the purchase price of properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, including but not limited to the value of above-market and below-market leases, and the value of in-place leases, based in each case on their fair values.

      The fair values of the tangible assets of an acquired property (which includes land and building) will be determined by valuing the property as if it were vacant, and the “as-if-vacant” value will then be allocated to land and building based on our determination of the relative fair value of these assets. We will determine the as-if vacant fair value of a property using methods similar to those used by independent appraisers. Factors we consider in performing these analyses will include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, we will include real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market demand. We will estimate costs to execute similar leases, including leasing commissions and other related costs.

      The fair values of above-market and below-market in-place leases will be recorded based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) our estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining terms of the leases. The capitalized above-market and below-market lease values will be

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amortized as an adjustment to rental income over the remaining terms of the respective leases. The fair values of in-place leases will include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals, which are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant will include commissions, tenant improvements and other direct costs and will be estimated based on our consideration of current market costs to execute a similar lease. We will include these direct costs in deferred leasing costs in our consolidated balance sheet and will amortize such costs to expense over the remaining terms of the respective leases. The value of opportunity costs will be calculated using the contractual amounts to be paid pursuant to the in-place leases over market absorption periods for similar leases. We will value customer relationships based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. We will include these lease intangibles in intangible lease assets in our consolidated balance sheet and amortize these assets to rental income and/or operating expenses over the remaining terms of the respective leases.

      Estimates of the fair values of the tangible and intangible assets will require us to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods and the number of years the property is held for investment. The use of certain estimates may result in an incorrect assessment of our purchase price allocations, which could impact the amount of our reported net income.

Consolidation Considerations for Option and Purchase Contracts and Investments in Joint Ventures

      Certain property purchase contracts and options to acquire property are required to be accounted for in accordance with Financial Accounting Standards Board Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” an interpretation of ARB No. 51 (“FIN 46R”). In addition, any joint ventures we enter into will be reviewed and analyzed under FIN 46R to determine whether or not these arrangements are to be accounted for under the principles of FIN 46R or other accounting rules.

      Under FIN 46R, a variable interest entity (“VIE”) is created when (i) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders, (ii) the entity’s equity holders as a group either (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity or (iii) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of an investor with disproportionately few voting rights.

      If an entity is deemed to be a VIE pursuant to FIN 46R, the enterprise that is deemed to absorb a majority of the expected losses, receive a majority of the entity’s expected residual returns, or both, is considered the primary beneficiary. If we are deemed to be the primary beneficiary of a VIE, we are required to consolidate the VIE on our balance sheet. Expected losses and residual returns for VIEs are calculated based on the probability of estimated future cash flows as defined in FIN 46R. Based on the provisions of FIN 46R, whenever we enter into a property purchase contract or an option contract for a property with an entity and make a non-refundable deposit or enter into a property joint venture, a VIE may have been created, and the arrangement is evaluated under FIN 46R.

      Management will be required to use significant judgment based on future events that may or may not occur when determining if we are the primary beneficiary of, or have a controlling interest in, an unconsolidated entity. Factors considered in determining whether we have significant influence or we have control include risk and reward sharing, experience and financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement. The accounting policy relating to the use of the equity method of accounting is a critical accounting policy due to the judgment required in determining whether we are the primary beneficiary or have control or significant influence.

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Distributions

      The amount of distributions to be paid to our stockholders will be determined by our board of directors and is dependent on a number of factors, including earnings, cash flow, funds available from our operations, general financial condition, future prospects, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code and other factors. In order to keep the timing and amount of distributions relatively stable, we may make distributions that may not be reflective of the actual income earned. We are authorized to borrow money, issue new securities or sell assets in order to make distributions.

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PRIOR PERFORMANCE SUMMARY

      The information presented in this section represents the historical experience of real estate programs managed by affiliates of our advisor in the last 10 years. Investors should not assume that they will experience returns, if any, comparable to those experienced by investors in such prior Cornerstone real estate programs.

      Affiliates of our advisor have been real estate investment fund managers for over 15 years. Cornerstone affiliates have profitably completed the investment cycle for 8 prior funds which have invested in multi-tenant industrial real estate. The investment cycle on these 8 prior funds has averaged 4.4 years, as reflected on page P-9 of this prospectus. The funds acquired, owned and operated properties during different economic cycles.

Public Program

      Affiliates of our advisor have sponsored Cornerstone Realty Fund, LLC, a publicly registered, non-traded real estate limited liability company which, as of August 18, 2005, had raised approximately $50,000,000 from 1,297 investors. This program has acquired a total of five properties, all of which were existing multi-tenant industrial properties. Two of these properties are located near Chicago, Illinois and three of these properties are located in Southern California. The properties were purchased on an all-cash basis with no debt financing. As of June 30, 2005, this program had invested approximately $21.1 million in properties and related lease intangibles and had approximately $15.5 million available for investment. This program has investment objectives which are similar to ours.

Private Programs

      This section provides you with information about the historical experience of privately offered real estate programs organized and sponsored by Cornerstone Ventures, Inc. and its affiliates. Cornerstone Ventures, Inc. is the manager of Cornerstone Industrial Properties, LLC which is the sole member of and an affiliate of our advisor. Between February 1993 and December 2003, the Cornerstone entities were responsible for the identification, acquisition and operation of multi-tenant industrial properties being acquired by two real estate operating joint ventures formed between Cornerstone and Koll Capital Markets Group, Inc. The two joint ventures historically operated under the name of Koll Cornerstone. Between February 1993 and August 1997, Koll Capital Markets Group, Inc., was owned by Koll Management Services, Inc. In August 1997, Koll Capital Markets Group, Inc. was acquired by CB Richard Ellis. In 1996, affiliates of Cornerstone were selected by Citigroup in New York to assist Citigroup in launching its international private banking real estate division. Cornerstone successfully completed three real estate equity joint ventures with affiliates of Citigroup. As of December 31, 2002, all operating properties of the above-described joint ventures had been sold. The above-described joint ventures are unrelated to us. Neither Koll Capital Markets Group, Inc., Koll Management Services, Inc., CB Richard Ellis nor Citigroup has any involvement with us.

      During the last ten years, Cornerstone and its affiliates have sponsored 8 privately offered real estate limited partnerships which raised a total of $18,316,000 from 52 investors. These programs acquired a total of 11 properties, all of which were existing multi-tenant industrial properties located in Southern California. The total purchase price of these properties was $61,476,000, a significant portion of which was represented by borrowed funds. All of these properties have been sold in their entirety as of December 31, 2002. These programs acquired multi-tenant industrial properties using permanent financing. These programs presented greater risk to the investors and their investment objectives were different from ours in this respect.

      During the most recent three years, these private programs have not acquired any properties. The properties acquired by these programs have been liquidated according to plan and the profits have been distributed to investors.

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      As of the date of this prospectus, our advisor believes that there have been no major adverse business developments or conditions experienced by any prior program that would be material.

      Potential investors are encouraged to examine the Prior Performance Tables in this prospectus for more detailed information regarding the prior experience of our advisor and its affiliates. In addition, upon request, prospective investors may obtain from our advisor without charge copies of offering materials and any reports prepared in connection with any of the public programs sponsored by our advisor and its affiliates, including a copy of the most recent Annual Report on Form 10-K filed with the SEC. For a reasonable fee, we will also furnish upon request copies of the exhibits to any such Form 10-K. Any such request should be directed to our advisor. These documents and any of these future filings with the SEC will be available to the public over the Internet at the SEC’s website at www.sec.gov and on our website at www.cornerstonerealtyfunds.com which provides a link to our SEC filings.

FEDERAL INCOME TAX CONSIDERATIONS

      The following summary describes the material federal income tax considerations to us and our stockholders relating to this registration statement and our treatment as a REIT. The summary is not intended to represent a detailed description of the federal income tax consequences applicable to a particular stockholder in view of such stockholder’s particular circumstances, nor is it intended to represent a detailed description of the federal income tax consequences applicable to certain types of stockholders subject to special treatment under the federal income tax laws (such as insurance companies, financial institutions, broker-dealers, non-U.S. persons, and, except to the extent discussed below, tax-exempt organizations). Stockholders described in the previous sentence should consult with their own tax advisors regarding the tax consequences to them of the purchase, ownership and sale of our stock. This summary does not address state, local or non-U.S. tax considerations. Also, this summary deals only with our stockholders that hold common stock as “capital assets” within the meaning of Section 1221 of the Internal Revenue Code (the “Code”).

      This summary of material federal income tax considerations relates only to U.S. Stockholders. A “U.S. Stockholder” means a holder of shares of stock that is: (a) an individual citizen or resident of the United States, (b) a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, (c) an estate, the income of which is subject to United States federal income taxation regardless of its source, or (d) a trust if a United States court is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. Stockholders who are not United States persons should consult their own tax advisors regarding the tax consequences to them of the purchase, ownership and sale of the offered stock.

      We base the information in this section on the current Code, current, temporary and proposed Treasury regulations, the legislative history of the Code and current administrative interpretations of the Internal Revenue Service (the “IRS”), including its practices and policies as endorsed in private letter rulings, which are not binding on the IRS, and existing court decisions. Future legislation, regulations, administrative interpretations and court decisions could change current law or adversely affect existing interpretations of current law. Any change could apply retroactively. We have not obtained any rulings from the IRS concerning the tax treatment of the matters discussed below. Thus, it is possible that the IRS could challenge the statements in this discussion, which do not bind the IRS or the courts, and that a court could agree with the IRS.

      Each investor is advised to consult his or her own tax advisor regarding the tax consequences to him or her of the purchase, ownership and sale of the offered stock, including the federal, state, local, foreign and other tax consequences of such purchase, ownership, or sale and of potential changes in applicable tax laws.

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Federal Income Taxation of the Company

      Beginning with our taxable year that will end December 31, 2005, we intend to elect to be taxed as a REIT under Sections 856 through 860 of the Code. We believe that beginning with that taxable year we will have been organized and will have operated in a manner qualifying for taxation as a REIT under the Code, and we intend to continue to operate in such a manner. We can provide no assurance, however, that we have operated or will operate in a manner so as to qualify or remain qualified as a REIT.

      The sections of the Code relating to qualification and operation as a REIT are highly technical and complex. The following discussion sets forth the material aspects of the Code sections that govern the federal income tax treatment of a REIT and its U.S. stockholders. This summary is qualified in its entirety by the applicable Code provisions, relevant rules and regulations and administrative and judicial interpretations of Code provisions and regulations. We have not requested a ruling from the IRS with respect to any issues relating to our qualification as a REIT. Therefore, we can provide no assurance that the IRS will not challenge our REIT status.

      Preston Gates & Ellis LLP has acted as tax counsel to us in connection with this offering. Preston Gates & Ellis LLP is of the opinion that based on our proposed method of operation, we will qualify for taxation as a REIT for the taxable year that will end December 31, 2005. Preston Gates & Ellis LLP’s opinion is based solely on our representations with respect to factual matters concerning our organization, our business operations and our properties. Preston Gates & Ellis LLP has not independently verified these facts. In addition, our qualification as a REIT depends, among other things, upon our meeting the requirements of Sections 856 through 860 of the Code throughout each year. Accordingly, because our satisfaction of such requirements will depend upon future events, including the final determination of financial and operational results, no assurance can be given that we will satisfy the REIT requirements during the taxable year that will end December 31, 2005, or in any future year.

      If we qualify as a REIT, we generally will not be subject to federal corporate income tax on the taxable income that we distribute to our stockholders each year. The benefit of that tax treatment is that it avoids the “double taxation,” or taxation at both the corporate and stockholder levels, that generally results from owning stock in a corporation. However, even if we qualify as a REIT, we could be subject to federal tax at the corporate level in the following circumstances:

      First, we will be taxed at regular corporate rates on our undistributed REIT taxable income, including undistributed net capital gains.

      Second, under some circumstances, we may be subject to the “alternative minimum tax” on our items of tax preference.

      Third, if we have net income from the sale or other disposition of “foreclosure property” (i.e., property acquired by us following a default on a lease of such property or on an indebtedness which such property secured) held primarily for sale to customers in the ordinary course of business, or income from foreclosure property that does not constitute qualifying income for purposes of the 75% income test (discussed below), we will be subject to tax at the highest corporate rate on such income.

      Fourth, if we have net income from prohibited transactions (which are, in general, certain sales or other dispositions of property that is held primarily for sale to customers in the ordinary course of business but that is not foreclosure property), we will be subject to a tax equal to 100% of such net income.

      Fifth, if we fail to satisfy either the 75% or 95% gross income test (discussed below) but have nonetheless maintained our qualification as a REIT because certain other requirements have been met, we will be subject to a tax equal to 100% of the net income attributable to (1) the greater of (a) the amount by which we fail the 75% income test or (b) the amount by which we fail the 95% gross income test, multiplied by (2) a fraction intended to reflect our profitability.

      Sixth, if we fail to distribute each year at least the sum of:

      (1) 85% of our REIT ordinary income for such year;

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      (2) 95% of our REIT capital gain net income for such year; and

      (3) any undistributed taxable income from prior periods,

then we will be subject to a 4% excise tax on the excess of the required distribution over the sum of (a) the amounts we actually distribute during the calendar year and (b) retained amounts on which we pay corporate income tax.

      Seventh, if we acquire any assets from a corporation subject to full corporate-level tax in certain tax-free transactions (including merger transactions) and we recognize gain on the disposition of such asset 10 years following the acquisition, then we will be subject to tax at the highest regular corporate rate on the lesser of the amount of gain that we recognize at the time of the sale or disposition and the amount of gain that we would have recognized if we had sold the asset at the time we acquired the asset.

Requirements for Qualification

      To qualify as a REIT, we must elect to be treated as a REIT and must meet the requirements, discussed below, relating to our organization, sources of income and nature of assets.

Organizational Requirements

      To qualify as a REIT, we must:

      (1) be managed by one or more trustees or directors;

(2)	use transferable shares of stock or transferable certificates to evidence beneficial ownership;
(3)	be taxable as a domestic corporation but for Sections 856 through 860 of the Code;
(4)	be neither a financial institution nor an insurance company;
(5)	have at least 100 persons as beneficial owners for at least 335 days of each 12-month taxable year and for a proportionate part of each taxable year of less than 12 months;
(6)	during the last half of each taxable year, not be closely held, i.e., not more than 50% of the value of our outstanding stock may be owned, directly or indirectly, by five or fewer “individuals,” as defined in the Code to include certain entities (i.e., a supplemental unemployment compensation benefit plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes, but not a qualified pension plan or profit sharing trust); and
(7)	meet other tests described below, including with respect to the nature of our assets and income.

      Conditions (5) and (6) will not apply until after the first taxable year for which we make an election to be taxed as a REIT. Our beneficial ownership is evidenced by transferable shares of stock. However, our charter currently includes certain restrictions regarding transfer of our common stock, which are intended (among other things) to assist us in continuing to satisfy conditions (5) and (6) noted above. We do not believe these restrictions cause our stock to be nontransferable within the meaning of Section 856(a)(2).

      To monitor compliance with the share ownership requirements, the federal tax laws require us to maintain records regarding the actual ownership of our stock. To do so, we must require written statements each year from the record holders of significant percentages of our stock in which the record holders are to disclose the actual owners of the stock, i.e., the persons required to include the distributions we pay in their gross income. A stockholder that fails or refuses to provide us with this written statement is required by Treasury regulations to submit a statement with its tax return disclosing the actual ownership of the stock and other information. We are required to maintain as part of our records a list of those persons failing or refusing to comply with this requirement. Failure by us to comply with these record-keeping requirements could subject us to monetary penalties. If we satisfy these requirements and have no reason to know that condition (6) is not satisfied, we will be deemed to have satisfied such condition.

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Ownership of Interests in Taxable REIT Subsidiaries

      A “taxable REIT subsidiary” of ours is a corporation in which we directly or indirectly own stock and that elects, together with us, to be treated as a taxable REIT subsidiary of ours. In addition, if a taxable REIT subsidiary of ours owns, directly or indirectly, securities representing 35% or more of the vote or value of another corporation, that other corporation will automatically be treated as a taxable REIT subsidiary of ours. A taxable REIT subsidiary is subject to federal income tax, and state and local income tax where applicable, as a regular “C” corporation. The value of all of our taxable REIT subsidiaries may not exceed 20% of the total value of our assets.

      Generally, a taxable REIT subsidiary can perform some impermissible tenant services without causing us to receive impermissible tenant services income under the REIT income tests (discussed below). However, several provisions regarding the arrangements between a REIT and its taxable REIT subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, the Code limits the ability of a taxable REIT subsidiary to deduct interest payments in excess of a certain amount paid to us. In addition, we must pay a 100% tax on some payments that we receive or on certain expenses deducted by the taxable REIT subsidiary if the economic arrangements between us, our tenants and the taxable REIT subsidiary are not comparable to similar arrangements among unrelated parties. We cannot assure you that any taxable REIT subsidiary will be able to fully deduct interest payments (if any) paid to us. In addition, we cannot assure you that the IRS would not seek to impose the 100% tax on services performed by any taxable REIT subsidiary for tenants of ours, or on a portion of the payments received by us from, or expenses deducted by, our taxable REIT subsidiaries.

Ownership of Interests in Partnerships and Qualified REIT Subsidiaries

      In the case of a REIT that is a partner in a partnership, Treasury Regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share. In addition, the character of the assets and gross income of the partnership retain the same character in the hands of the REIT. Thus, our proportionate share of the assets, liabilities and items of income of our operating partnership will be treated as our assets, liabilities and items of income for purposes of applying and meeting the various REIT requirements. In addition, our operating partnership’s proportionate share of the assets, liabilities and items of income with respect to any partnership (including any limited liability company treated as a partnership) in which it holds an interest would be considered assets, liabilities and items of income of our operating partnership for purposes of applying and meeting the various REIT requirements.

      If we own all of the capital stock of a subsidiary corporation and we do not make an election to treat the subsidiary as a taxable REIT subsidiary, the subsidiary will be a “qualified REIT subsidiary” and its separate existence will be disregarded for federal income tax purposes. All assets, liabilities and items of income, deduction and credit of the qualified REIT subsidiary will be treated as our assets, liabilities and items of income, deduction and credit. A qualified REIT subsidiary of ours will not be subject to federal corporate income taxation, although it may be subject to state and local income taxation in some states.

Income Tests

      To maintain qualification as a REIT, we must meet two gross income requirements annually. First, we must derive directly or indirectly at least 75% of our gross income (excluding gross income from prohibited transactions) from investments relating to real property, including “rents from real property,” in certain circumstances, interest (including interest on debts secured by mortgages on real property), and investments in other REITs. Second, we must derive at least 95% of our gross income (excluding gross income from prohibited transactions) from the real property investments described in the preceding sentence as well as from distributions, interest, or gain from the sale or disposition of stock or securities (or from any combination of the foregoing).

      Prior to the making of investments in properties, we may satisfy the 75% gross income test and the 95% income test by investing in liquid assets such as government securities or certificates of deposit, but

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earnings from those types of assets are qualifying income under the 75% gross income test only for one year from the receipt of proceeds from our investors. Accordingly, to the extent that offering proceeds have not been invested in properties prior to the expiration of this one-year period, in order to satisfy the 75% gross income test, we may invest the offering proceeds in less liquid investments approved by our board of directors such as mortgage-backed securities or shares of stock in other REITs. We intend to trace offering proceeds received for purposes of determining the one-year period for “new capital investments.” No rulings or regulations have been issued under the provisions of the Code governing “new capital investments,” so there can be no assurance that the IRS will agree with this method of calculation.

      Rents we receive or that we are deemed to receive will qualify as “rents from real property” in satisfying the gross income requirements for a REIT described above only if several conditions are met. First, the amount of rent must not be based in whole or in part on the net income or profits of any person but can be based on a fixed percentage of gross receipts or gross sales.

      Second, “rents from real property” excludes any amount received directly or indirectly from a corporation or other entity 10% of which is owned, directly or indirectly, by us (although in some limited circumstances, rents we receive from a taxable REIT subsidiary may qualify as “rents from real property”).

      Third, rent attributable to personal property is generally excluded from “rents from real property,” except where such personal property is leased in connection with such real property and the rent attributable to such personal property is less than or equal to 15% of the total rent received under the lease. We do not anticipate deriving rent attributable to personal property leased in connection with real property that exceeds 15% of the total rent attributable to such lease or receiving rent from related party tenants.

      Finally, amounts that are attributable to services furnished or rendered by us in connection with the rental of real property or to our management or operation of the property (“impermissible tenant services”), whether or not separately stated, will not constitute “rents from real property” unless such services are furnished through a taxable REIT subsidiary or an independent contractor from whom we do not derive any income. However, income from services we directly provide will qualify as “rents from real property” if they are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not otherwise considered rendered to the occupant of the property. Our rental income should not cease to qualify as “rents from real property” merely because we perform a de minimis amount of impermissible tenant services. The income from these services will be considered de minimis if the value of such services (valued at not less than 150% of our direct cost of performing such services) is less than 1% of the total income derived from such property.

      Our operating partnership may provide certain services with respect to our properties. We believe that these services will be of the type that are usually or customarily rendered in connection with the rental of space for occupancy only and that are not otherwise rendered to the tenants. Therefore, we believe that the provision of such customary services will not cause rents received with respect to our properties to fail to qualify as “rents from real property.” Noncustomary services and services rendered primarily for the tenants’ convenience will be provided by an independent contractor or a taxable REIT subsidiary to avoid jeopardizing the qualification of rent as “rents from real property.”

      Fees to perform property management services for properties that we do not own will not qualify under the 75% or the 95% gross income tests. Either we or our operating partnership also may receive certain other types of income with respect to our properties that will not qualify for either of these tests (including amounts received with respect to certain investments of cash reserves). However, we believe that the aggregate amount of such fees and other non-qualifying income in any taxable year will not cause us to exceed the limits for non-qualifying income under the 75% and 95% gross income tests.

      If we fail one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for that year if we are eligible for relief under a certain provision of the Code. This relief provision generally will be available if: (1) following our identification of the failure to satisfy one or

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both of the tests, we file a schedule for the tax year in accordance with IRS regulations with a description of each item of gross income subject to these income tests, and (2) our failure to meet such gross income tests is due to reasonable cause and not due to willful neglect. We, however, cannot state whether in all circumstances we would be entitled to the benefit of this relief provision. For example, if we fail to satisfy the gross income tests because non-qualifying income that we intentionally receive exceeds the limits on such income, the IRS could conclude that our failure to satisfy the tests was not due to reasonable cause. As discussed above in “Federal Income Taxation of the Company,” even if this relief provision applies, a 100% tax would be imposed with respect to the part of our taxable income that fails the 75% or 95% tests.

Asset Tests

      At the close of each quarter of our taxable year, we also must satisfy four tests relating to the nature and diversification of our assets.

      First, at least 75% of the value of our total assets must be represented by real estate assets (such as realty and shares of stock in other REITs), cash and cash items (including receivables) and government securities.

      Second, no more than 25% of the value of our total assets may consist of securities (other than those securities includible in the 75% asset test).

      Third, except for equity investments in other REITs, qualified REIT subsidiaries or taxable REIT subsidiaries or other securities that qualify as “real estate assets” for purposes of the 75% asset test: (1) the value of any one issuer’s securities owned by us may not exceed 5% of the value of our total assets; (2) we may not own more than 10% of any one issuer’s outstanding voting securities; and (3) we may not own more than 10% of the value of the outstanding securities of any one issuer. With respect to each issuer in which we acquire an interest that does not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT subsidiary, we will endeavor to ensure that our pro rata share of the value of the securities, including debt, of any such issuer does not exceed 5% of the total value of our assets and that we comply with the 10% voting securities limitation and 10% value limitation with respect to each such issuer. In this regard, however, we cannot provide any assurance that the IRS might not disagree with our determinations. We will not lose our REIT status for failing to satisfy the tests described in this paragraph if the failure is due to ownership of assets the total value of which does not exceed the lesser of (a) 1% of the total value of our assets at the end of the quarter, or (b) $10 million, so long as we either dispose of the assets within 6 months after the last day of the quarter in which we identify the failure (or a different period of time prescribed by the IRS) or otherwise satisfy the tests described in this paragraph by the end of this time period. In this case we will not be subject to the tax described below with respect to our failure to satisfy any of the REIT assets tests.

      Fourth, no more than 20% of the value of our total assets may be represented by securities of one or more taxable REIT subsidiaries.

      After initially meeting the asset tests at the close of any quarter, we will not lose our status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If the failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, we can cure the failure by disposing of a sufficient amount of non-qualifying assets within 30 days after the close of that quarter. We intend to maintain adequate records of the value of our assets to ensure compliance with the asset tests and to take such other actions within 30 days after the close of any quarter as necessary to cure any noncompliance.

      If we fail any of the asset tests for any quarter and the failure exceeds the de minimus threshold described above, we may nevertheless qualify as a REIT for that a quarter if (1) after we identify our failure to satisfy the asset tests for the quarter, we file a schedule in accordance with IRS regulations with a description of each asset that caused the failure to satisfy any of the tests at the close of the quarter, (2) our failure to satisfy the tests is due to reasonable cause and not due to willful neglect; (3) we dispose of the assets described on the schedule within 6 months of the last days of the quarter in which we

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identified the failure to satisfy the assets test (or a different period of time prescribed by the IRS) or the assets tests are otherwise satisfied within that period; and (4) we pay a tax on the failure. The tax is the greater of $50,000 or an amount determined by the IRS regulations by multiplying the net income generated by the assets described in the scheduled by the highest corporate tax rate. The tax must be paid for the period beginning on the first day of the failure to satisfy the assets test resulting from the failure and ending on the earlier of the date we dispose of the assets causing the failure or the end of the first quarter in which we otherwise satisfy the tests.

Annual Distribution Requirements

      To qualify for taxation as a REIT in any year, we must meet the following annual distribution requirements.

      First, we must make distributions (other than capital gain distributions) to our stockholders in an amount at least equal to (a) the sum of

(1)	90% of our “REIT taxable income” (computed without regard to the dividends paid deduction and by excluding our net capital gain), and
(2)	90% of the net income, if any, from foreclosure property in excess of the excise tax on income from foreclosure property,

minus (b) the sum of certain items of non-cash income.

      We must pay these distributions in the taxable year to which they relate. Distributions made in the subsequent year, however, will be treated as if paid in the prior year for purposes of such prior year’s 90% distribution requirement if one of the following two sets of criteria are satisfied: (1) the distributions were declared in October, November, or December, the distributions were payable to stockholders of record on a specified date in such a month, and the distributions were actually paid during January of the subsequent year; or (2) the distributions were declared before we timely file our federal income tax return for such year, the distributions were made in the 12-month period following the close of the prior year and not later than the first regular distribution payment after such declaration, and we elected on our tax return for the prior year to have a specified amount of the subsequent distribution treated as if paid in the prior year. Even if we satisfy this annual distribution requirement, we will be subject to tax at regular corporate tax rates to the extent that we do not distribute all of our net capital gain or “REIT taxable income” as adjusted. In the event that we do not meet this distribution requirement, we will be subject to corporate taxation for the year and may be ineligible to be taxed as a REIT for the following four years, as described in more detail below under “— Failure to Qualify as a REIT.”

      Second, we must distribute during each calendar year at least the sum of

      (1) 85% of our ordinary income for that year;

      (2) 95% of our capital gain net income for that year; and

      (3) any undistributed taxable income from prior periods.

      In the event that we do not satisfy this distribution requirement, we will be subject to a 4% excise tax on the excess of such required distribution over the sum of (a) the amounts we actually distribute during the calendar year and (b) retained amounts on which we pay corporate income tax.

      We intend to make timely distributions sufficient to satisfy the annual distribution requirements. In this regard, the operating partnership agreement will authorize us, as general partner, to take such steps as may be necessary to cause our operating partnership to distribute to its partners an amount sufficient to permit us to meet these distribution requirements.

      We expect that our REIT taxable income will be less than our cash flow due to the allowance of depreciation and other non-cash charges in computing REIT taxable income. Accordingly, we anticipate that we generally will have sufficient cash or liquid assets to enable us to satisfy the 90% distribution

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requirement. It is possible, however, that we may not have sufficient cash or other liquid assets to meet the 90% distribution requirement or to distribute such greater amount as may be necessary to avoid income and excise taxation. In such event, we may find it necessary to borrow funds to pay the required distribution or, if possible, pay taxable stock distributions in order to meet the distribution requirement.

      In computing our REIT taxable income, we will use the accrual method of accounting. We are required to file an annual federal income tax return, which, like other corporate returns, is subject to examination by the IRS. Because the tax law requires us to make many judgments regarding the proper treatment of a transaction or an item of income or deduction, it is possible that the IRS will challenge positions we take in computing our REIT taxable income and our distributions. Issues could arise, for example, with respect to the allocation of the purchase price of properties between depreciable or amortizable assets and nondepreciable or non-amortizable assets such as land and the current deductibility of fees paid to our advisor or its affiliates. In the event that we are subject to an adjustment to our REIT taxable income resulting from an adverse determination by either a final court decision, a closing agreement between us and the IRS, or any agreement as to tax liability between us and an IRS district director, we may be able to correct any resulting failure to meet the 90% annual distribution requirement by paying “deficiency dividends” to our stockholders that relate to the adjusted year but that are paid in the subsequent year. To qualify as a deficiency dividend, the distribution must be made within 90 days of the adverse determination and we also must satisfy certain other procedural requirements. If the statutory requirements are satisfied, a deduction is allowed for any deficiency dividend subsequently paid by us to offset an increase in our REIT taxable income resulting from the adverse determination. We, however, will be required to pay statutory interest on the amount of any deduction taken for deficiency dividends to compensate for the deferral of the tax liability.

Earnings and Profits

      Throughout the remainder of this discussion, we frequently will refer to “earnings and profits.” Earnings and profits is a concept used extensively throughout corporate tax law, but it is undefined in the Code. Each corporation maintains an “earnings and profits” account that helps to measure whether a distribution originates from corporate earnings or from other sources. Distributions generally decrease the earnings and profits while income generally increases earnings and profits. If a corporation has positive earnings and profits, the distributions generally will be considered to come from corporate earnings. If a corporation has no earnings and profits, distributions generally will be considered a return of capital and then capital gain.

Failure to Qualify as a REIT

      If we fail to qualify as a REIT in any year and the relief provisions do not apply, we will be subject to tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible by us. In such event, to the extent of positive current or accumulated earnings and profits, all distributions to stockholders will be distributions, currently taxable to individuals at preferential rates (not exceeding 15%) under the Jobs and Growth Relief Reconciliation Act of 2003 (the “2003 Act”). Subject to certain limitations, corporate distributees may be eligible for the dividends-received deduction. Unless we are entitled to relief under specific statutory provisions, we also will be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether in all circumstances we would be entitled to such statutory relief.

Sale-Leaseback Transactions

      Some of our investments may be in the form of sale-leaseback transactions. In most instances, depending on the economic terms of the transaction, we will be treated for federal income tax purposes as either the owner of the property or the holder of a debt secured by the property. We do not expect to request an opinion of counsel concerning the status of any leases of properties as true leases for federal income tax purposes.

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      The IRS may take the position that a specific sale-leaseback transaction, which we treat as a true lease, is not a true lease for federal income tax purposes but is, instead, a financing arrangement or loan. In this event, for purposes of the asset tests and the 75% gross income test, each such loan likely would be viewed as secured by real property to the extent of the fair market value of the underlying property. We expect that, for this purpose, the fair market value of the underlying property would be determined without taking into account our lease. If a sale-leaseback transaction were so re-characterized, we might fail to satisfy the asset tests or the income tests and, consequently, lose our REIT status effective with the year of re-characterization. Alternatively, the amount of our REIT taxable income could be recalculated which might also cause us to fail to meet the distribution requirement for a taxable year.

Taxation of U.S. Stockholders

      For any taxable year for which we qualify for taxation as a REIT, amounts distributed to taxable U.S. Stockholders will be taxed as discussed below.

Distributions Generally

      Distributions to taxable U.S. Stockholders, other than capital gain distributions discussed below, will constitute taxable distributions up to the amount of our positive current or accumulated earnings and profits. Dividends received from REITs are generally not eligible to be taxed at the preferential qualified dividend income rates applicable to individuals who receive dividends from taxable C corporations pursuant to the 2003 Act. An exception applies, however, and individual stockholders are taxed at such rates on distributions designated by and received from REITs, to the extent that the distributions are attributable to (i) income that the REIT previously retained in the prior year, and on which it was subject to corporate level tax, (ii) distributions received by the REIT from taxable corporations, or (iii) income from sales of appreciated property acquired from C corporations in carryover basis transactions. Because a REIT is not subject to tax on income distributed to its stockholders, the distributions made to corporate stockholders are not eligible for the dividends-received deduction. To the extent that we make a distribution in excess of our positive current or accumulated earnings and profits, the distribution will be treated first as a tax-free return of capital, reducing the tax basis in the U.S. Stockholder’s shares of common stock and then the distribution in excess of the tax basis will be taxable as gain realized from the sale of the common stock. Distributions we declare in October, November, or December of any year payable to a stockholder of record on a specified date in any such month shall be treated as both paid by us and received by the stockholders on December 31 of the year, provided that we actually make the distributions during January of the following calendar year. Stockholders are not allowed to include on their own federal income tax returns any of our tax losses.

      We will be treated as having sufficient earnings and profits to treat as a dividend any distribution we make up to the amount required to be distributed in order to avoid imposition of the 4% excise tax discussed in “Federal Income Taxation of the Company” and “Annual Distribution Requirements” above.

Capital Gain Distributions

      Distributions to U.S. Stockholders that we properly designate as capital gain distributions will be treated by our U.S. Stockholders as long-term capital gains (to the extent they do not exceed our actual net capital gain) for the taxable year without regard to the period for which the stockholder has held the stock. However, corporate stockholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. Capital gain dividends are not eligible for the dividends-received deduction for corporations. Long-term capital gains are currently taxable at maximum federal rates of 15% (through 2008) in the case of stockholders who are individuals, and 35% for corporations. Capital gains we realize and distribute attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum federal income tax rate for taxpayers who are individuals, to the extent of previously claimed depreciation deductions. We will furnish you with reports as to the amount of the components of any capital gain distributions that we pay to you.

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      We may elect to retain and pay income tax on any net long-term capital gain. In this instance, U.S. Stockholders will include in their income their proportionate share of the undistributed long-term capital gain. The U.S. Stockholders also will be deemed to have paid their proportionate share of tax on such long-term capital gain and, therefore, will receive a credit or refund for the amount of such tax. In addition, the basis of the U.S. Stockholders’ shares of stock will be increased in an amount equal to the excess of the amount of capital gain included in its income over the amount of tax it is deemed to have paid.

Certain Dispositions of Stock

      In general, you will recognize capital gain or loss on the disposition of our stock (including a redemption treated as a sale or exchange for federal tax purposes) equal to the difference between (1) the amount of cash and the fair market value of any property received on such disposition, and (2) your adjusted basis of such REIT stock.

      The tax rate applicable to recognized gain will depend on the stockholder’s holding period in the stock (generally, if the stockholder has held the stock for more than one year, it will produce long-term capital gain) and the stockholder’s tax bracket. The IRS has the authority to prescribe, but has not yet prescribed, regulations that would apply a capital gain tax rate of 25% (which is generally higher than the long-term capital gain tax rates for non-corporate stockholders) to a portion of capital gain realized by a non-corporate stockholder on the sale of common stock that would correspond to our “unrecaptured Section 1250 gain.” Stockholders should consult with their own tax advisors with respect to their capital gain tax liability. In general, any loss recognized by a U.S. Stockholder upon the sale or other disposition of common stock that the stockholder has held for six months or less, after applying the holding period rules, will be treated as long-term capital loss, to the extent of distributions received by the U.S. Stockholder from us that were required to be treated as long-term capital gains.

Passive Activity Loss and Investment Interest Limitations

      You may not treat distributions we make to you or any gain from disposing of our common stock as passive activity income. Therefore, you will not be able to apply any “passive losses” against such income. Distributions we make (to the extent they do not constitute a return of capital) generally will be treated as investment income for purposes of the investment interest limitation. Net capital gain from the disposition of our common stock (or capital gain dividends) generally will be excluded from investment income unless you elect to have such gain taxed at ordinary income rates.

Tax Aspects of Participation in the Distribution Reinvestment Plan

      Unless you are a tax-exempt entity, if you participate in our distribution reinvestment plan, you will be deemed to have received, and you will be taxed on, the amount reinvested in common stock to the extent the amount reinvested was not a tax-free return of capital. As a result, you may have to use funds from other sources to pay your tax liability on the distributions you reinvest in our stock.

Treatment of Tax-Exempt Stockholders

      Distributions we make to a tax-exempt employee pension trust or other domestic tax-exempt stockholder generally will not constitute “unrelated business taxable income” (“UBTI”) unless the tax-exempt stockholder has borrowed to acquire or carry our shares of common stock. Qualified trusts that hold more than 10% (by value) of the stock of REITs held predominantly by qualified employee pension benefit trusts may be required to treat a certain percentage of such REIT’s distributions as UBTI. We will attempt to monitor the concentration of ownership of employee pension benefit trusts in our stock, and we do not expect our stock to be deemed to be “predominately held” by qualified employee pension benefit trusts to the extent required to trigger the treatment of our income as UBTI to such trusts.

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Information Reporting Requirements and Backup Withholding Tax

U.S. Stockholders

      In general, information reporting requirements will apply to payments of distributions on our common stock and payments of the proceeds of the sale of our common stock, unless an exception applies. Further, under certain circumstances, U.S. Stockholders may be subject to backup withholding, at a rate of 28% for 2004, on payments made with respect to, or cash proceeds of a sale or exchange of, our common stock. Backup withholding will apply only if:

(1)	the payee fails to furnish his or her taxpayer identification number (which, for an individual, would be his or her Social Security Number) to the payor as required;
(2)	the payee furnishes an incorrect taxpayer identification number;
(3)	the IRS has notified the payee that such payee has failed to properly include reportable interest and dividends in the payee’s return or has failed to file the appropriate return and the IRS has assessed a deficiency with respect to such underreporting; or
(4)	the payee has failed to certify to the payor, under penalties of perjury, that the payee is not subject to withholding. In addition, backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations. U.S. Stockholders should consult their own tax advisors regarding their qualifications for exemption from backup withholding and the procedure for obtaining such an exemption.

      Backup withholding is not an additional tax. Rather, the amount of any backup withholding with respect to a payment to a U.S. Stockholder will be allowed as a credit against the U.S. Stockholder’s federal income tax liability and may entitle the stockholder to a refund, provided that the stockholder furnishes the required information to the IRS.

Tax Aspects of Our Operating Partnership

General

      We expect that substantially all of our investments will be held through Cornerstone Operating Partnership, L.P., our operating partnership. In general, partnerships are “pass-through” entities that are not subject to federal income tax. Rather, partners are allocated their proportionate share of the items of partnership income, gain, loss, deduction and credit and are potentially subject to tax thereon, without regard to whether the partners receive a distribution from the partnership. We will include in our income our proportionate share of our operating partnership’s income, gain, loss, deduction and credit for purposes of the various REIT income tests and in the computation of our REIT taxable income. In addition, we will include our proportionate share of assets held by our operating partnership in the REIT asset tests.

Basis in Operating Partnership Interest

      Our adjusted tax basis in our interest in our operating partnership generally:

(1)	will be equal to the amount of cash and the basis of any other property that we contributed to our operating partnership,
(2)	will be increased by (a) our allocable share of our operating partnership’s income and (b) our allocable share of indebtedness of our operating partnership; and
(3)	will be reduced, but not below zero, by our allocable share of (a) losses suffered by our operating partnership, (b) the amount of cash distributed to us, and (c) constructive distributions resulting from a reduction in our share of indebtedness of our operating partnership.

      If the allocation of our distributive share of our operating partnership’s loss exceeds the adjusted tax basis of our partnership interest in our operating partnership, the recognition of such excess loss will be deferred until such time and to the extent that we have an adjusted tax basis in our partnership interest.

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To the extent that our operating partnership’s distributions, or any decrease in our share of the indebtedness of our operating partnership (such decreases being considered a cash distribution to the partners) exceed our adjusted tax basis, such excess distributions (including such constructive distributions) constitute taxable income to us. Such taxable income normally will be characterized as a capital gain if the interest in our operating partnership has been held for longer than one year, subject to reduced tax rates described above (See “ —Taxation of U.S. Stockholders — Capital Gain Distributions”). Under current law, capital gains and ordinary income of corporations generally are taxed at the same marginal rates.

Sale of the Properties

      Our share of gain realized by our operating partnership on the sale of any property held by our operating partnership as inventory or other property held primarily for sale to customers in the ordinary course of our operating partnership’s trade or business will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. See “Requirements for Qualification — Income Tests.” Such prohibited transaction income also may have an adverse effect upon our ability to satisfy the income tests for qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of our operating partnership’s trade or business is a question of fact that depends on all the facts and circumstances with respect to the particular transaction. We, however, do not presently intend to acquire or hold or allow our operating partnership to acquire or hold any property that represents inventory or other property held primarily for sale to customers in the ordinary course of our or our operating partnership’s trade or business.

State and Local Tax

      We may be subject to state and local tax in various states and localities. Our stockholders also may be subject to state and local tax in various states and localities. The tax treatment to us and to our stockholders in such jurisdictions may differ from the federal income tax treatment described above. Consequently, before you buy our common stock, you should consult your own tax advisor regarding the effect of state and local tax laws on an investment in our common stock.

ERISA CONSIDERATIONS

      The following is a summary of some considerations associated with an investment in our stock by a qualified employee pension benefit plan or an individual retirement account (IRA). This summary is based on provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Code, each as amended through the date of this prospectus, and relevant regulations and opinions and other authority issued by the Department of Labor and the Internal Revenue Service. We cannot assure you that there will not be adverse tax or labor decisions or legislative, regulatory or administrative changes which would significantly modify the statements expressed herein. Any such changes may or may not apply to transactions entered into prior to the date of their enactment.

      Each fiduciary of an employee pension benefit plan subject to ERISA, such as a profit sharing, section 401(k) or pension plan, or of any other retirement plan or account subject to Section 4975 of the Internal Revenue Code, such as an IRA, seeking to invest plan assets in our stock must, taking into account the facts and circumstances of each such plan or IRA (Benefit Plan), consider, among other matters:

•  whether the investment is consistent with the applicable provisions of ERISA and the Internal Revenue Code;

•  whether, under the facts and circumstances appertaining to the Benefit Plan in question, the fiduciary’s responsibility to the plan has been satisfied;

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•  whether the investment will produce UBTI to the Benefit Plan (see “Federal Income Tax Considerations — Treatment of Tax-Exempt Stockholders”); and

•  the need to value the assets of the Benefit Plan annually.

      Under ERISA, a plan fiduciary’s responsibilities include the following duties:

•  to act solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits to them, as well as defraying reasonable expenses of plan administration;

•  to invest plan assets prudently;

•  to diversify the investments of the plan unless it is clearly prudent not to do so;

•  to ensure sufficient liquidity for the plan; and

•  to consider whether an investment would constitute or give rise to a prohibited transaction under ERISA or the Code.

      ERISA also requires that the assets of an employee benefit plan be held in trust and that the trustee, or a duly authorized named fiduciary or investment manager, have exclusive authority and discretion to manage and control the assets of the plan.

Prohibited Transactions

      Section 406 of ERISA and Section 4975 of the Code prohibit specified transactions involving the assets of a Benefit Plan which are between the plan and any “party in interest” or “disqualified person” with respect to that Benefit Plan unless an administrative or statutory exemption applies. These transactions are prohibited regardless of how beneficial they may be for the Benefit Plan. Prohibited transactions include the sale, exchange or leasing of property, and the lending of money or the extension of credit, between a Benefit Plan and a party in interest or disqualified person. The transfer to, or use by or for the benefit of, a party in interest, or disqualified person of any assets of a Benefit Plan is also prohibited, as is the furnishing of services between a plan and a party in interest. A fiduciary of a Benefit Plan also is prohibited from engaging in self-dealing, acting for a person who has an interest adverse to the plan or receiving any consideration for its own account from a party dealing with the plan in a transaction involving plan assets. Furthermore, Section 408 of the Code states that assets of an IRA trust may not be commingled with other property except in a common trust fund or common investment fund.

Plan Asset Considerations

      In order to determine whether an investment in our stock by Benefit Plans creates or gives rise to the potential for either prohibited transactions or a commingling of assets as referred to above, a fiduciary must consider whether an investment in our stock will cause our assets to be treated as assets of the investing Benefit Plans. Neither ERISA nor the Code define the term “plan assets”; however, U.S. Department of Labor Regulations provide guidelines as to whether, and under what circumstances, the underlying assets of an entity will be deemed to constitute assets of a Benefit Plan when the plan invests in that entity (Plan Assets Regulation). Under the Plan Assets Regulation, the assets of corporations, partnerships or other entities in which a Benefit Plan makes an equity investment will generally be deemed to be assets of the Benefit Plan unless the entity satisfies one of the exceptions to this general rule. As discussed below, we have received an opinion of counsel that, based on the Plan Assets Regulation, our underlying assets should not be deemed to be “plan assets” of Benefit Plans investing in stock, assuming the conditions set forth in the opinion are satisfied, based upon the fact that at least one of the specific exemptions set forth in the Plan Assets Regulation is satisfied, as determined under the criteria set forth below.

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      Specifically, the Plan Assets Regulation provides that the underlying assets of REITs will not be treated as assets of a Benefit Plan investing therein if the interest the Benefit Plan acquires is a “publicly-offered security.” A publicly-offered security must be:

•  sold as part of a public offering registered under the Securities Act of 1933, as amended, and be part of a class of securities registered under the Securities Exchange Act of 1934, as amended, within a specified time period;

•  part of a class of securities that is owned by 100 or more persons who are independent of the issuer and one another; and

•  “freely transferable.”

      Our stock is being sold as part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act, and is part of a class registered under the Securities Exchange Act. In addition, we anticipate having well in excess of 100 independent stockholders. Thus, both the first and second criterion of the publicly-offered security exception will be satisfied.

      Whether a security is “freely transferable” depends upon the particular facts and circumstances. For example, our stock is subject to certain restrictions on transferability intended to ensure that we continue to qualify for federal income tax treatment as a REIT. The regulation provides, however, that where the minimum investment in a public offering of securities is $10,000 or less, the presence of a restriction on transferability intended to prohibit transfers which would result in a termination or reclassification of the entity for state or federal tax purposes will not ordinarily affect a determination that such securities are “freely transferable.” The minimum investment in our stock is less than $10,000; thus, the restrictions imposed in order to maintain our status as a REIT should not cause the stock to be deemed not “freely transferable.”

      In the event that our underlying assets were treated by the Department of Labor as the assets of investing Benefit Plans, our management would be treated as fiduciaries with respect to each Benefit Plan stockholder, and an investment in our stock might constitute an ineffective delegation of fiduciary responsibility to our advisor and expose the fiduciary of the Benefit Plan to co-fiduciary liability under ERISA for any breach by our advisor of the fiduciary duties mandated under ERISA. Further, if our assets are deemed to be “plan assets,” an investment by an IRA in our stock might be deemed to result in an impermissible commingling of IRA assets with other property.

      If our advisor or its affiliates were treated as fiduciaries with respect to Benefit Plan stockholders, the prohibited transaction restrictions of ERISA and the Code would apply to any transaction involving our assets. These restrictions could, for example, require that we avoid transactions with entities that are affiliated with us or our affiliates or restructure our activities in order to obtain an administrative exemption from the prohibited transaction restrictions. Alternatively, we might have to provide Benefit Plan stockholders with the opportunity to sell their stock to us or we might dissolve or terminate.

      If a prohibited transaction were to occur, the Code imposes an excise tax equal to 15% of the amount involved and authorizes the IRS to impose an additional 100% excise tax if the prohibited transaction is not “corrected” in a timely manner. These taxes would be imposed on any disqualified person who participates in the prohibited transaction. In addition, our advisor and possibly other fiduciaries of Benefit Plan stockholders subject to ERISA who permitted the prohibited transaction to occur or who otherwise breached their fiduciary responsibilities, or a non-fiduciary participating in a prohibited transaction, could be required to restore to the Benefit Plan any profits they realized as a result of the transaction or breach, and make good to the Benefit Plan any losses incurred by the Benefit Plan as a result of the transaction or breach. With respect to an IRA that invests in our stock, the occurrence of a prohibited transaction involving the individual who established the IRA, or his or her beneficiary, would cause the IRA to lose its tax-exempt status under Section 408(e)(2) of the Code.

      We have obtained an opinion from Preston Gates & Ellis LLP that it is more likely than not that our stock will be deemed to constitute “publicly-offered securities” and, accordingly, that it is more likely than

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not that our underlying assets should not be considered “plan assets” under the Plan Assets Regulation, assuming the offering takes place as described in this prospectus. If our underlying assets are not deemed to be “plan assets,” the problems discussed in the immediately preceding three paragraphs are not expected to arise.

Other Prohibited Transactions

      Regardless of whether the stock qualifies for the “publicly-offered security” exception of the Plan Assets Regulation, a prohibited transaction could occur if we, our advisor, any selected broker-dealer or any of their affiliates is a fiduciary (within the meaning of Section 3(21) of ERISA) with respect to any Benefit Plan purchasing the stock. Accordingly, unless an administrative or statutory exemption applies, stock should not be purchased by a Benefit Plan with respect to which any of the above persons is a fiduciary. A person is a fiduciary with respect to a Benefit Plan under Section 3(21) of ERISA if, among other things, the person has discretionary authority or control with respect to the Benefit Plan or “plan assets,” or provides investment advice for a fee with respect to “plan assets.” Under a regulation issued by the Department of Labor, a person shall be deemed to be providing investment advice if that person renders advice as to the advisability of investing in our stock and that person regularly provides investment advice to the Benefit Plan pursuant to a mutual agreement or understanding (written or otherwise) (1) that the advice will serve as the primary basis for investment decisions, and (2) that the advice will be individualized for the Benefit Plan based on its particular needs.

Annual Valuation

      A fiduciary of an employee benefit plan subject to ERISA is required to determine annually the fair market value of each asset of the plan as of the end of the plan’s fiscal year and to file a report reflecting that value with the Department of Labor. When the fair market value of any particular asset is not available, the fiduciary is required to make a good faith determination of that asset’s fair market value assuming an orderly liquidation at the time the determination is made. In addition, a trustee or custodian of an IRA must provide an IRA participant with a statement of the value of the IRA each year. In discharging its obligation to value assets of a plan, a fiduciary subject to ERISA must act consistently with the relevant provisions of the plan and the general fiduciary standards of ERISA.

      Unless and until our stock is listed on a national securities exchange or included for quotation on the Nasdaq National Market, it is not expected that a public market for the stock will develop. To date, neither the Internal Revenue Service nor the Department of Labor has promulgated regulations specifying how a plan fiduciary should determine the fair market value of the stock, namely when the fair market value of the stock is not determined in the marketplace. Therefore, to assist fiduciaries in fulfilling their valuation and annual reporting responsibilities with respect to ownership of stock, we intend to have our advisor prepare annual reports of the estimated value of our stock.

      Eventually, we may engage a third-party valuation firm to value our stock; however, we intend to use our advisor’s estimate until at least three fiscal years after completion of our offering stage. We view our offering stage as complete upon the termination of our first public equity offering that is followed by a one-year period in which we do not engage in another public equity offering. For purposes of this definition, we do not consider a “public equity offering” to include offerings on behalf of selling stockholders or offerings related to a distribution reinvestment plan, employee benefit plan or the redemption of interests in our operating partnership). Furthermore, our advisor has indicated that during this initial period it intends to use the most recent price paid to acquire a share in our offering (ignoring reduced purchase prices for certain categories of purchasers) as its estimated per share value of our stock. Although this approach to valuing our stock has the advantage of avoiding the cost of paying for appraisals or other valuation services, the estimated value may bear little relationship and will likely exceed what you might receive for your shares of them if you tried to sell them or if we liquidated the portfolio.

      After three years from completion of our offering stage, the estimated value of our stock will be based upon a number of assumptions that may not be accurate or complete. We do not currently anticipate

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obtaining appraisals for our properties and, accordingly, the estimates should not be viewed as an accurate reflection of the fair market value of our properties, nor will they represent the amount of net proceeds that would result from an immediate sale of our properties. For these reasons, the estimated valuations should not be used for any purpose other than to assist plan fiduciaries in fulfilling their annual valuation and reporting responsibilities. Even after our advisor no longer uses the most recent offering price as the estimated value of one of our shares of stock, you should be aware of the following:

•  the estimated values may not be realized by us or by you upon liquidation (in part because estimated values do not necessarily indicate the price at which assets could be sold and because the estimates may not take into account the expenses of selling our assets);

•  you may not realize these values if you were to attempt to sell your stock; and

•  using the estimated values, or the method used to establish values, may not comply with the ERISA or IRA requirements described above.

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DESCRIPTION OF STOCK

      Our charter authorizes the issuance of 300,000,000 shares of stock, of which 290,000,000 shares are designated as common stock with a par value of $0.001 per share and 10,000,000 shares are designated as preferred stock with a par value of $0.001 per share. In addition, our board of directors, with the approval of a majority of the entire board and without any action by our stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue.

      As of the date of this prospectus, 125 shares of our common stock were issued and outstanding, and no shares of preferred stock were issued and outstanding.

Common Stock

      Subject to our charter restrictions on transfer of our stock and except as may otherwise be specified in the terms of any class or series of common stock, the holders of common stock are entitled to one vote per share on all matters voted on by stockholders, including election of our directors. Our charter does not provide for cumulative voting in the election of our directors. Therefore, the holders of a majority of our outstanding shares of common stock can elect our entire board of directors. Subject to any preferential rights of any outstanding series of preferred stock, the holders of common stock are entitled to such distributions as may be authorized from time to time by our board of directors and declared by us out of legally available funds and, upon liquidation, are entitled to receive all assets available for distribution to our stockholders. While our board will endeavor to authorize the company to make such distributions as are necessary for us to qualify as a REIT, stockholders will have no right to any distribution unless and until authorized by the board and declared by us. Holders of shares of common stock will not have preemptive rights, which means that you will not have an automatic option to purchase any new shares that we issue. In addition, holders of shares of common stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights. Subject to our charter restrictions on transfer of our stock, all shares of common stock will have equal distribution, liquidation and other rights.

Preferred Stock

      Our charter authorizes our board of directors to classify and reclassify any unissued shares of our common stock and preferred stock into other classes or series of stock. Prior to issuance of shares of each class or series, the board is required by Maryland law and by our charter to set, subject to our charter restrictions on transfer of our stock, the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the board could authorize the issuance of shares of common stock or preferred stock with terms and conditions which could have the effect of delaying or preventing a change in control. Our board of directors has no present plans to issue preferred stock, but may do so at any time in the future without stockholder approval.

Issuance of Additional Securities and Debt Instruments

      Our directors are authorized to issue additional stock or other convertible securities for cash, property or other consideration on such terms as they may deem advisable. Our directors are also authorized to classify or reclassify any unissued shares of our stock without approval of the holders of our outstanding securities. Subject to some restrictions, our directors may cause us to issue debt obligations, including debt with conversion privileges on more than one class of our stock. Our directors may issue debt obligations on such terms and conditions as they may determine, including debt with the right to convert into stock. Subject to some restrictions, our directors may also cause us to issue warrants, options and rights to buy our common stock on such terms as they deem advisable to our stockholders, as part of a financing arrangement, or pursuant to stock option plans. Our directors may cause us to issue warrants, options and rights to buy our common stock even though their exercise could result in dilution in the value of our outstanding common stock.

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Meetings and Special Voting Requirements

      An annual meeting of the stockholders will be held each year, at least 30 days after delivery of our annual report. Special meetings of stockholders may be called only upon the request of a majority of our directors, a majority of our independent directors or our chief executive officer or upon the written request of stockholders holding at least 10% of the shares entitled to be cast on any issue proposed to be considered at the special meeting. The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting constitutes a quorum. Unless otherwise provided by the Maryland General Corporation Law or our charter, the affirmative vote of a majority of all votes cast is necessary to take stockholder action, except that a majority of the votes represented in person or by proxy at a meeting at which a quorum is present is required to elect a director.

      Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless approved by the affirmative vote of stockholders holding at least two thirds of the shares entitled to vote on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our charter provides that without the approval of a majority of the shares entitled to vote on the matter, the board of directors may not:

•  amend the charter, including any amendment that would adversely affect the rights, preferences and privileges of the stockholders and any amendment relating to director qualifications, fiduciary duties, liability and indemnification, conflicts of interest, investment policies or investment restrictions, except that the board of directors, with the approval of a majority of the entire board and without any action by our stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue or as otherwise permitted by the Maryland General Corporation Law;

•  cause our liquidation or dissolution after our initial investment in property;

•  sell all or substantially all of our assets other than in the ordinary course of business or as otherwise permitted by law; or

•  cause our merger or reorganization except as permitted by law.

      Our advisor will be selected and approved as our advisor annually by our directors. While the stockholders do not have the ability to vote to replace our advisor or to select a new advisor, stockholders do have the ability, by the affirmative vote of a majority of the shares entitled to vote on such matter and with or without cause, to remove a director from our board.

      Our charter provides that our advisor, our directors, or any of their affiliates may not vote or consent on matters submitted to our stockholders regarding the removal of our advisor, our directors or any of their affiliates or any transaction between us and any of them.

      Our stockholders are entitled to receive a copy of our stockholder list upon request. The list provided by us will include each stockholder’s name, address and telephone number, if available, and the number of shares owned by each stockholder and will be sent within ten days of the receipt by us of the request. A stockholder requesting a list will be required to pay reasonable costs of postage and duplication. Stockholders and their representatives shall also be given access to our trust records at reasonable times. We have the right to request that a requesting stockholder represent to us that the list and records will not be used to pursue commercial interests.

Restriction on Ownership of Stock

Ownership Limit

      In order for us to qualify for taxation as a REIT, during the last half of each taxable year, not more than 50% of the value of our outstanding stock may be owned, directly or indirectly, by five or fewer

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individuals, as defined in the Code to include certain entities. In addition, the outstanding stock must be owned by 100 or more persons independent of us and each other during at least 335 days of a 12-month taxable year or during a proportionate part of a shorter taxable year. Each of the requirements specified in the two preceding sentences shall not apply until after the first taxable year for which we make an election to be taxed as a REIT. We may prohibit certain acquisitions and transfers of stock so as to ensure our continued qualification as a REIT under the Code. However, we cannot assure you that this prohibition will be effective.

      In order to assist us in preserving our status as a REIT, our charter contains a limitation on ownership that prohibits any person or group of persons from acquiring, directly or indirectly, beneficial ownership of more than 9.8% in number of shares or value, whichever is more restrictive, of the outstanding shares of any class or series of our stock unless exempted by our board of directors. Our charter provides that any transfer of stock that would violate our share ownership limitations is null and void and the intended transferee will acquire no rights in such stock. Our board of directors may in its sole discretion, based upon receipt of information that such transfer would not violate the provisions of the Code for qualification as a REIT waive the 9.8% ownership limit with respect to a proposed transferee upon such conditions as the board may direct.

      In addition, our charter provides that any attempted transfer of our stock which, if effective, would result in

•  our stock being owned by fewer than 100 persons,

•  our failing to qualify as a REIT by reason of being “closely held” under Section 856(h) of the Internal Revenue Code,

•  our constructively owning 9.8% or more of the ownership interests in a tenant of our company’s, our operating partnership’s or any subsidiary’s real property within the meaning of Section 856(d)(2)(B) of the Code, or

•  our failing to qualify as a REIT by reason of a violation of an applicable jurisdiction’s securities laws or regulations

will be null and void and the intended transferee will acquire no rights in such stock.

      Shares of stock that, if transferred, would cause an individual or entity to be in excess of the 9.8% ownership limit (without an exemption from our board of directors) will be transferred automatically to a trust effective as of the close of business on the day before the reported transfer of such stock. The record holder of the shares of stock that are held in trust will be required to submit such number of shares to us in the name of the trustee of the trust. We will designate a trustee of the share trust that will not be affiliated with us. We will also name one or more charitable organizations as a beneficiary of the share trust. Stock held in trust will remain issued and outstanding stock and will be entitled to the same rights and privileges as all other shares of the same class or series. The trustee will receive all distributions on the stock held in trust and will hold such distributions in trust for the benefit of the beneficiary. Any distribution made prior to our discovery that shares of stock have been transferred to the trust will be repaid by the recipient to the trustee. Any distribution authorized but unpaid will be paid when due to the trustee. The trustee may vote any stock held in trust. Subject to Maryland law, the trustee will have the authority (1) to rescind as void any vote cast by the proposed transferee prior to our discovery that the shares have been transferred to the trust and (2) to recast the vote in accordance with the desires of the trustee acting for the benefit of the beneficiary. However, if we have already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote.

      At our direction, the trustee will transfer the stock held in trust to a person whose ownership will not violate the ownership limit. The transfer shall be made within 20 days of our receipt of notice that stock has been transferred to the trust. During this 20-day period, we will have the option of redeeming such stock. Upon any such transfer or redemption, the interest of the beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale or redemption to the proposed

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transferee and to the beneficiary as follows. The proposed transferee will receive the lesser of (1) the price paid by the proposed transferee for the shares or, if the proposed transferee did not give value for the shares in connection with the event causing the shares to be held in the trust (e.g., a gift, devise or other similar transaction), the market price (as defined in our charter) of the shares on the day of the event causing the shares to be held in the trust and (2) the price received by the trustee from the sale or other disposition of the shares. Any net proceeds in excess of the amount payable to the proposed transferee will be paid to the beneficiary.

      In addition, shares of our stock held in the trust will be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the price per share in the transaction that resulted in the transfer to the trust (or, in the case of a devise or gift, the market price at the time of the devise or gift) and (2) the market price on the date we, or our designee, accept the offer. We will have the right to accept the offer for a period of 20 days after the later of the event causing the shares to be held in the trust or, if we did not receive notice of a restricted transfer, our determination in good faith that such an event has occurred. Upon a sale to us, the interest of the beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee.

      Any person who acquires stock in violation of the foregoing restrictions or who owns stock that was transferred to any such trust is required to give immediate written notice to us of such event, and any person who transfers or receives stock subject to such limitations is required to give us 15 days written notice prior to such transaction. In both cases, such persons shall provide to us such other information as we may request in order to determine the effect, if any, of such transfer on our status as a REIT.

      In addition, every owner of more than 5% (or such lower percentage as required by the Internal Revenue Code or the regulations promulgated thereunder or as may be requested by the board of directors) of our stock, within 30 days after the end of each taxable year, is required to give us written notice, stating his name and address, the number of shares of each class and series of our stock which he beneficially owns and a description of the manner in which the shares are held. Each such owner shall provide us with such additional information as we may request in order to determine the effect, if any, of his beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits. In addition, each stockholder shall upon demand be required to provide us with such information as we may request in good faith in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance.

      The foregoing restrictions will continue to apply until our board of directors determines it is no longer in our best interest to continue to qualify as a REIT. The ownership limit does not apply to the underwriter in an offering of stock or, as discussed above, to a person or persons exempted from the ownership limit by our board of directors based upon appropriate assurances that our qualification as a REIT would not be jeopardized.

      The foregoing restrictions could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Suitability Standards and Minimum Purchase Requirements

      State law and our charter require that purchasers of our stock meet standards regarding (i) net worth or income and (ii) minimum purchase amounts. These standards are described above at “Suitability Standards” immediately following the cover page of this prospectus and below at “Plan of Distribution — Minimum Purchase Requirements.” The standards apply not only to purchasers in this offering, but also to potential transferees of your stock. As a result, the requirements regarding suitability and minimum purchase amounts, which are applicable until our shares of common stock are listed on a national securities exchange or the Nasdaq National Market, may make it more difficult for you to sell your stock.

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Stockholder Liability

      Our charter provides that our stockholders will not be personally liable for any debt or obligation of any kind by reason of being one of our stockholders.

Distributions

      We intend to make distributions quarterly, if not more frequently. Distributions will be made to investors who are stockholders as of the record dates selected by our board of directors. We expect to calculate our periodic distributions based upon daily record and distribution declaration dates so our investors will be entitled to receive distributions immediately upon their purchase of stock. We will then make distribution payments quarterly, if not more frequently, following such calculation.

      We are required to make distributions sufficient to satisfy the requirements for qualification as a REIT for tax purposes. Generally, income distributed will not be taxable to us under the Internal Revenue Code if we distribute at least 90% of our taxable income. See “Federal Income Tax Considerations — Annual Distribution Requirements.”

      Distributions will be authorized at the discretion of our board of directors. Our board will be guided, in substantial part, by its desire to cause us to comply with the REIT requirements. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period but may be made in anticipation of cash flow that we expect to receive during a later period and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform. We will use money distributed to us by our operating partnership to make distributions. There are no restrictions on distributions to us by our operating partnership. We may also borrow money, issue securities or sell assets in order to make distributions.

      We have adopted a policy which requires us to distribute to our stockholders proceeds from this offering which have not been invested or reserved for maintenance or capital improvements within one year following the termination of this offering.

      We are not prohibited from distributing our own securities in lieu of making cash dividends to stockholders provided that such securities (other than the special 10% stock distribution) are readily marketable. We intend to declare a special 10% stock distribution described below to the investors who purchase the first $125,000,000 of stock sold in this offering. The shares issued as a special 10% stock distribution will not be readily marketable. We may issue other securities as stock distributions in the future provided that such stock is readily marketable. Stockholders may incur transaction expenses in liquidating the securities.

      Maryland law prohibits us from making distributions if after the distribution we would be unable to pay our debts as they become due in the usual course or if our assets are less than the sum of our liabilities.

Special 10% Stock Distribution for Early Investors

      Our board of directors has authorized a one-time 10% stock distribution to be paid to the stockholders of record on the date that we raise $125,000,000 in this offering. If you are one of the investors who purchase the stock sold in this offering before the record date for this special 10% stock distribution, you will receive one additional share of stock for every 10 shares of stock you own as of the record date. This special 10% stock distribution has the effect of lowering your effective purchase price per share of stock by approximately 10%. This special 10% stock distribution will not affect the price at which we would redeem your stock pursuant to our stock repurchase program which will be based on the price you paid for the shares of stock which you actually purchased. We will notify prospective investors of the date on which we declare this special 10% stock distribution by means of a sticker supplement to this prospectus. Stock distributions are generally not subject to federal income tax.

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      If we pay this special 10% stock distribution on the first $125,000,000 in this offering, we will issue 1,562,500 shares for which we will receive no consideration. In the event we sell all of the shares we are offering in our primary offering, and assuming we sell no shares pursuant to our distribution reinvestment program, investors who do not receive the special 10% stock distribution will experience dilution of approximately $0.27 per share. In the event we sell only one half of the shares we are offering in our primary offering, investors who do not receive the special 10% stock distribution will experience dilution of approximately $0.53 per share.

      We will date-stamp and keep a record of all subscriptions as we receive them. To determine which investors are entitled to the special 10% stock distribution, we will track orders on a daily basis as we approach the $125,000,000 threshold amount. If we receive subscriptions at the same time that would put us over the threshold amount, the investor with the earliest investor signature date will be accepted first. If multiple subscriptions are received on the same date and have the same investor signature date, the subscription with the earliest postmark will be accepted first.

Distribution Reinvestment Plan

      We currently have a distribution reinvestment plan available and approved by a majority of our independent directors that allows you to have distributions otherwise distributable to you invested in additional shares of our common stock. We are offering 11,000,000 shares of stock under our distribution reinvestment plan. The sale of these shares has been registered on the registration statement for this offering and are in addition to the 44,400,000 shares being sold in our primary offering. The following discussion summarizes the principal terms of the distribution reinvestment plan. The full text of our Distribution Reinvestment Plan is included as Appendix B to this prospectus.

Eligibility

      Participation in the distribution reinvestment plan is limited to investors who have purchased stock in this offering or holders of units of our operating partnership. See “Plan of Distribution — Compensation of Dealer Manager and Participating Broker-Dealers” below for other restrictions on eligibility to purchase stock under the distribution reinvestment plan. We may elect to deny your participation in the distribution reinvestment plan if you reside in a jurisdiction or foreign country where, in our judgment, the burden or expense of compliance with applicable securities laws makes your participation impracticable or inadvisable. Residents of the State of Arizona will be eligible to participate in the distribution reinvestment plan only if the Company continues to renew registration of its shares in accordance with the Securities Act of Arizona.

Election to Participate

      Assuming you are eligible, you may elect to participate in the distribution reinvestment plan by completing the Subscription Agreement or other approved enrollment form available from the dealer manager or a participating broker-dealer. Your participation in the distribution reinvestment plan will begin with the next distribution made after receipt of your enrollment form. Once enrolled, you may continue to purchase stock under our distribution reinvestment plan until we have sold all of the shares of stock registered in this offering, have terminated this offering or have terminated the distribution reinvestment plan. You can choose to have all or a portion of your distributions reinvested through the distribution reinvestment plan. You may also change the percentage of your distributions that will be reinvested at any time if you complete a new enrollment form or other form provided for that purpose. Any election to increase your level of participation must be made through your participating broker-dealer or, if you purchased your stock in this offering other than through a participating broker-dealer, through the dealer manager.

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Stock Purchases

      Stock will be purchased under the distribution reinvestment plan on our distribution payment dates. The purchase of fractional shares is a permissible, and likely, result of the reinvestment of distributions under the distribution reinvestment plan.

      During our primary offering, the purchase price per share will be $7.20 per share of our common stock. The offering price for shares in our distribution reinvestment plan may increase after the closing of our primary offering. Fees are included in the price. We will not charge you any other fees in connection with your purchase of shares in under the distribution reinvestment plan. The price for shares purchased under the distribution reinvestment plan bears little relationship to, and will likely exceed, what you might receive for your shares if you tried to sell them or if we liquidated our portfolio. Purchase of our stock under our distribution reinvestment plan may effectively lower the total return on your investment with us.

Account Statements

      Our dealer manager or a participating broker-dealer will provide a confirmation of your periodic purchases under the distribution reinvestment plan. Within 90 days after the end of each calendar year, we will provide you with an individualized report on your investment, including the purchase dates, purchase price, number of shares owned, and the amount of distributions made in the prior year. We will send to all participants in the plan, without charge, all supplements to and updated versions of this prospectus which we are required to provide under applicable securities laws.

Fees and Commissions

      We will not pay a commission in connection with your purchase of stock in our distribution reinvestment plan. No dealer manager fees or due diligence expense allowance will be paid on stock sold under the plan. We will not receive a fee for selling stock under the distribution reinvestment plan. See “Management Compensation.”

Voting

      You may vote all shares of stock acquired through the distribution reinvestment plan.

Tax Consequences of Participation

      If you elect to participate in the distribution reinvestment plan and are subject to federal income taxation, you will incur a tax liability for distributions allocated to you even though you have elected not to receive the distributions in cash but rather to have the distributions withheld and reinvested pursuant to the distribution reinvestment plan.

      Specifically, you will be treated as if you have received the distribution from us in cash and then applied such distribution to the purchase of additional stock. You will be taxed on the amount of such distribution as a dividend to the extent such distribution is from current or accumulated earnings and profits, unless we have designated all or a portion of the distribution as a capital gain dividend. See “Federal Income Tax Considerations — Taxation of U.S. Stockholders — Distributions Generally.” We will withhold 28% of the amount of distributions paid if you fail to furnish a valid taxpayer identification number, fail to properly report interest or dividends or fail to certify that you are not subject to withholding. See “Federal Income Tax Considerations — Information Reporting Requirements and Backup Withholding Tax.”

Termination of Participation

      You may terminate your participation in the distribution reinvestment plan at any time by providing us with written notice. Any transfer of your stock will effect a termination of the participation of those shares of stock in the distribution reinvestment plan. You must promptly notify us should you no longer meet the suitability standards described above at “Suitability Standards” immediately following the cover

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page of this prospectus or cannot make the other representations or warranties set forth in the Subscription Agreement at any time prior to the listing of the stock on a national stock exchange or the Nasdaq National Market. We will terminate your participation to the extent that a reinvestment of your distributions in our stock would cause you to exceed the ownership limitation contained in our charter.

Amendment or Termination of Plan

      We may amend or terminate the distribution reinvestment plan for any reason at any time upon 10 days prior written notice to participants.

Proposed Stock Repurchase Program

      Our board of directors intends to adopt a stock repurchase program that would enable our stockholders to sell their stock to us in limited circumstances. We will not adopt the program until the earlier of (i) the completion of this primary offering, which may last until                     , 2007 or (ii) receipt by us of SEC exemptive relief from rules restricting issuer purchases during distributions, which relief we may not obtain. Moreover, even when one of these conditions is met, our board of directors could choose not to adopt the proposed stock repurchase program or to amend its provisions without stockholder approval. Upon adoption, our proposed stock repurchase program would permit you to sell your stock back to us after you have held it for at least one year, subject to the significant conditions and limitations described below.

      As long as our common stock is not listed on a national securities exchange or the Nasdaq National Market, our stockholders who have held their stock for at least one year may be able to have all or any portion of their shares of stock redeemed in accordance with the procedures described in this prospectus. At that time, we may, subject to the conditions and limitations described below, redeem the shares of stock presented for redemption for cash to the extent that we have sufficient funds available to us to fund such redemption. The amount that we may pay to redeem stock will be the redemption price set forth in the following table which is based upon the number of years the stock is held:

Number Years Held	Redemption Price
Less than 1		No Redemption Allowed
1 or more but less than 2		90% of your purchase price
2 or more but less than 3		95% of your purchase price
Less than 3 in the event of death		100% of your purchase price
3 or more but less than 5		100% of your purchase price
5 or more		Estimated liquidation value

      The estimated liquidation value for the repurchase of shares of stock held for 5 or more years will be determined by our advisor or another person selected for such purpose and will be approved by our board of directors. The stock repurchase price is subject to adjustment as determined from time to time by our board of directors. At no time will the stock repurchase price exceed the price at which we are offering our common stock for sale at the time of the repurchase.

      In the event that all of your shares of stock will be repurchased, shares purchased pursuant to our distribution reinvestment plan may be excluded from the foregoing one-year holding period requirement, in the discretion of the board of directors. In addition, for purposes of the one-year holding period, limited partners of our operating partnership who redeem their limited partnership units for shares of our stock will be deemed to have owned their shares as of the date they were issued their limited partnership units in our operating partnership.

      Our board of directors intends to waive the one-year holding period in the event of the death of a stockholder and adjust the redemption price to 100% of such stockholders purchase price even if the stockholder held the shares for less than 3 years. Our board of directors reserves the right in its sole

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discretion at any time and from time to time, upon thirty (30) days prior notice to our stockholders, to adjust the redemption price for our shares of stock, or suspend or terminate our stock repurchase program.

      During this offering and each of the first five years following the closing of this offering, our stock repurchase program would limit the number of shares of stock we could redeem (other than redemptions due to death of a stockholder) to those that we can purchase with net proceeds from the sale of stock under our distribution reinvestment plan. During this offering and each of the first five years following the closing of this offering, we do not intend to redeem more than the lesser of (i) the number of shares that could be redeemed using the proceeds from our distribution reinvestment plan or (ii) 5% of the number of shares outstanding at the end of the prior calendar year. Beginning five years after termination of this offering, the number of shares that we redeem under the stock repurchase program is not expected to exceed 10% of the number outstanding at the end of the prior year. Our board of directors may modify our stock repurchase program so that we can redeem stock using the proceeds from the sale of our real estate investments or other sources.

      As proposed, we would redeem shares of stock on the last business day of each month. Requests for redemption would have to be received at least five business days before that date in order for us to repurchase the stock that month. If we could not purchase all shares of stock presented for redemption in any month, we would attempt to honor redemption requests on a pro rata basis. We would deviate from pro rata purchases in two ways: (i) if a pro rata redemption would result in you owning less than half of the minimum amounts described at “Plan of Distribution — Minimum Purchase Requirements,” then we would redeem all of your shares of stock; and (ii) if a pro rata redemption would result in you owning more than half but less than all of those minimum amounts, then we would not redeem any shares of stock that would reduce your holdings below the minimum amounts.

      If we did not completely satisfy a stockholder’s redemption request at month-end because the request was not received in time or because of the restrictions on the number of shares we could redeem under the program, we would treat the unsatisfied portion of the redemption request as a request for redemption in the following month unless the stockholder withdrew his or her request before the next date for redemptions. Any stockholder could withdraw a redemption request upon written notice to the address provided below before the date for redemption.

      We will notify you upon adoption of the stock repurchase program. Thereafter, qualifying stockholders who desire to have their stock redeemed will need to give written notice to Cornerstone Core Properties REIT, Inc., 4590 MacArthur Blvd., Suite 610, Newport Beach, California 92660, Attn: Investor Services or such other address as we provide to you for this purpose.

      After adoption of the stock repurchase program, our board of directors could amend, suspend or terminate the program at any time upon thirty (30) days prior notice to our stockholders. We would notify you of such developments (i) in the annual or quarterly reports mentioned above or (ii) by means of a separate mailing to you, accompanied by disclosure in a current or periodic report under the Securities Exchange Act of 1934. During this offering, we would also include this information in a prospectus supplement or post-effective amendment to the registration statement, as then required under federal securities laws.

      Our proposed stock repurchase program would only provide stockholders a limited ability to have stock redeemed for cash until a secondary market develops for the stock, if ever, at which time the program would terminate. No such market presently exists, and we cannot assure you that any market for your stock will ever develop.

Registrar and Transfer Agent

      We intend to appoint a registered transfer agent to serve as the registrar and transfer agent for our common stock.

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Uncertificated Shares of Stock

      Our board of directors has authorized the issuance of shares of our stock without certificates. We expect that, until our stock is listed on a national securities exchange or the Nasdaq National Market, we will not issue stock in certificated form. We will maintain a stock ledger that contains the name and address of each stockholder and the number of shares that the stockholder holds. With respect to uncertificated stock, we will continue to treat the stockholder registered on our stock ledger as the owner of the stock until the new owner delivers a properly executed transfer form to us, which we will provide to any registered holder upon request.

Restrictions on Roll-Up Transactions

      In connection with any proposed transaction considered a “Roll-up Transaction” (defined below) involving us and the issuance of securities of an entity, which we refer to as a “Roll-up Entity,” that would be created or would survive after the successful completion of the Roll-up Transaction, an appraisal of all properties will be obtained from a competent independent appraiser. The properties will be appraised on a consistent basis, and the appraisal will be based on the evaluation of all relevant information and will indicate the value of the properties as of a date immediately preceding the announcement of the proposed Roll-up Transaction. The appraisal will assume an orderly liquidation of properties over a 12-month period. The terms of the engagement of the independent appraiser will clearly state that the engagement is for our benefit and the benefit of our stockholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, will be included in a report to stockholders in connection with any proposed Roll-up Transaction.

      A “Roll-up Transaction” is a transaction involving the acquisition, merger, conversion or consolidation, directly or indirectly, of us and the issuance of securities of a Roll-up Entity. This term does not include:

•  a transaction involving our securities that have been for at least 12 months listed on a national securities exchange or included for quotation on the Nasdaq National Market; or

•  a transaction involving our conversion to corporate, trust, or association form if, as a consequence of the transaction, there will be no significant adverse change in stockholder voting rights, the term of our existence, compensation to our advisor or our investment objectives.

      In connection with a proposed Roll-up Transaction, the person sponsoring the Roll-up Transaction must offer to stockholders who vote “no” on the proposal the choice of:

(1)	accepting the securities of the Roll-up Entity offered in the proposed Roll-up Transaction; or
(2)	one of the following:

(A)  remaining as stockholders of us and preserving their interests therein on the same terms and conditions as existed previously; or

(B)  receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of our net assets.

      We are prohibited from participating in any proposed Roll-up Transaction:

•  that would result in the stockholders having democracy rights in a Roll-up Entity that are less than those provided in our bylaws and described elsewhere in this prospectus, including rights with respect to the election and removal of directors, annual reports, annual and special meetings, amendment of our charter, and dissolution of us;

•  that includes provisions that would operate to materially impede or frustrate the accumulation of stock by any purchaser of the securities of the Roll-up Entity, except to the minimum extent necessary to preserve the tax status of the Roll-up Entity, or which would limit the ability of an

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	investor to exercise the voting rights of its securities of the Roll-up Entity on the basis of the number of shares held by that investor;
•	in which investors’ rights to access of records of the Roll-up Entity will be less than those provided in the section of this prospectus entitled “Description of Stock — Meetings and Special Voting Requirements;” or
•	in which any of the costs of the Roll-up Transaction would be borne by us if the Roll-up Transaction is not approved by the stockholders.

Business Combinations

      Under the Maryland General Corporation Law, business combinations between a Maryland corporation and an interested stockholder or the interested stockholder’s affiliate are prohibited for five years after the most recent date on which the stockholder becomes an interested stockholder. For this purpose, the term “business combination” includes mergers, consolidations, share exchanges, asset transfers and issuances or reclassifications of equity securities. An “interested stockholder” is defined for this purpose as: (1) any person who beneficially owns ten percent or more of the voting power of the corporation’s shares; or (2) an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then outstanding voting shares of the corporation. A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

      After the five-year prohibition, any business combination between the corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least: (1) 80% of the votes entitled to be cast by holders of outstanding voting shares of the corporation; and (2) two-thirds of the votes entitled to be cast by holders of voting shares of the corporation other than shares held by the interested stockholder or its affiliate with whom the business combination is to be effected, or held by an affiliate or associate of the interested stockholder.

      These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under the Maryland General Corporation Law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.

      None of these provisions of the Maryland General Corporation Law will apply, however, to business combinations that are approved or exempted by the board of directors of the corporation prior to the time that the interested stockholder becomes an interested stockholder. We have opted out of these provisions by resolution of our board of directors. However, our board of directors may, by resolution, opt in to the business combination statute in the future.

      Should our board opt in to the business combination statute, it may discourage others from trying to acquire control of Cornerstone Realty Fund and increase the difficulty of consummating any offer.

Control Share Acquisitions

      The Maryland General Corporation Law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are not entitled to vote on the matter. “Control shares” are voting shares which, if aggregated with all other shares owned by the acquiror or with respect to which the acquiror has the right to vote or to direct the voting of, other than solely by virtue of revocable proxy,

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would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting powers:

•  one-tenth or more but less than one-third;

•  one-third or more but less than a majority; or

•  a majority or more of all voting power.

      Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. Except as otherwise specified in the statute, a “control share acquisition” means the acquisition of control shares.

      Once a person who has made or proposes to make a control share acquisition has undertaken to pay expenses and has satisfied other required conditions, the person may compel the board of directors to call a special meeting of stockholders to be held within 50 days of the demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.

      If voting rights are not approved for the control shares at the meeting or if the acquiring person does not deliver an “acquiring person statement” for the control shares as required by the statute, the corporation may redeem any or all of the control shares for their fair value, except for control shares for which voting rights have previously been approved. Fair value is to be determined for this purpose without regard to the absence of voting rights for the control shares, and is to be determined as of the date of the last control share acquisition or of any meeting of stockholders at which the voting rights for control shares are considered and not approved.

      If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of these appraisal rights may not be less than the highest price per share paid in the control share acquisition. Some of the limitations and restrictions otherwise applicable to the exercise of dissenters’ rights do not apply in the context of a control share acquisition.

      The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or to acquisitions approved or exempted by the charter or bylaws of the corporation.

      Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of our stock. There can be no assurance that this provision will not be amended or eliminated at any time in the future.

Subtitle 8

      Subtitle 8 of Title 3 of the Maryland General Corporation Law permits a Maryland corporation with a class of equity securities registered under the Securities Exchange Act of 1934 and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions:

•  a classified board,

•  two-thirds vote requirement for removing a director,

•  a requirement that the number of directors be fixed only by vote of the directors,

•  a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred, and

•  a majority requirement for the calling of a special meeting of stockholders.

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      Through provisions in our charter and bylaws unrelated to Subtitle 8, we already vest in our board of directors the exclusive power to fix the number of directorships.

Advance Notice of Director Nominations and New Business

      Our bylaws provide that with respect to an annual meeting of stockholders, nominations of individuals for election to the board of directors and the proposal of business to be considered by stockholders may be made only (i) pursuant to our notice of the meeting, (ii) by the board of directors or (iii) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of individuals for election to the board of directors at a special meeting may be made only (i) pursuant to our notice of the meeting, (ii) by the board of directors, or (iii) provided that the board of directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.

Anti-Takeover Effect of Certain Provisions of Maryland Law and of the Charter and Bylaws

      The advance notice provisions of the bylaws could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. Likewise, if our board of directors were to opt in to the business combination provisions of the Maryland General Corporation Law or the provisions of Title 3, Subtitle 8 of the Maryland General Corporation Law, or if the provision in the bylaws opting out of the control share acquisition provisions of the Maryland General Corporation Law were rescinded, these provisions of the Maryland General Corporation Law could have similar anti-takeover effects.

Your Access to Our Records

      Our charter grants our stockholders and any designated representative access, without charge, to all our records at reasonable times. You may make copies at your own expense of our records. You may also request a copy of a list with the name, address and telephone number of each of our stockholders as well as the number of shares owned by each. We will mail you this list of stockholders within 10 days of our receipt of your request.

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THE OPERATING PARTNERSHIP AGREEMENT

General

      Cornerstone Operating Partnership, L.P., which we refer to as our operating partnership, was formed on November 30, 2004 to acquire, own and operate properties on our behalf. As a result of this structure, we are considered to be an umbrella partnership real estate investment trust, or UPREIT. An UPREIT is a structure REITs often use to acquire real property from owners on a tax deferred basis (the sellers can generally accept partnership units and defer taxable gain otherwise required to be recognized by them upon the disposition of their properties). Such owners may also desire to achieve diversity in their investment and other benefits afforded to stockholders in a REIT. For purposes of satisfying the asset and income tests for qualification as a REIT for tax purposes, the REIT’s proportionate share of the assets and income of our operating partnership will be deemed to be assets and income of the REIT.

      We expect that substantially all of our assets will be held by our operating partnership. We are the sole general partner of our operating partnership. Our advisor and its affiliates have purchased $200,000 of limited partnership units in our operating partnership. As of the date of this prospectus, our advisor is the only limited partner of our operating partnership. As the sole general partner, we will have the exclusive power to manage and conduct the business of our operating partnership.

      The following is a summary of material provisions of the limited partnership agreement of our operating partnership. This summary is qualified by the specific language in the limited partnership agreement. You should refer to the limited partnership agreement, which we have filed as an exhibit to the registration statement, for more detail.

Capital Contributions

      As we accept subscriptions for stock, we will transfer substantially all of the net proceeds of the offering to our operating partnership as a capital contribution; however, we will be deemed to have made capital contributions in the amount of the gross offering proceeds received from investors. Our operating partnership will be deemed to have simultaneously paid the sales commissions and other costs associated with the offering. If our operating partnership requires additional funds at any time in excess of capital contributions made by us and our advisor or from borrowing, we may borrow funds from a financial institution or other lender and lend such funds to our operating partnership on the same terms and conditions as are applicable to our borrowing of such funds. In addition, we are authorized to cause our operating partnership to issue partnership interests for less than fair market value if we conclude in good faith that such issuance is in the best interest of our operating partnership and us.

Operations

      The limited partnership agreement of our operating partnership provides that, so long as we remain qualified as a REIT, our operating partnership is to be operated in a manner that will enable us to satisfy the requirements for being classified as a REIT for tax purposes. As a general partner of our operating partnership, we are also empowered to take the necessary steps to ensure that our operating partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Code. Classification as a publicly traded partnership could result in our operating partnership being taxed as a corporation, rather than as a partnership.

Distributions and Allocations of Profits and Losses

      The value of each unit of limited partnership interest in our operating partnership will be determined by our board of directors but is expected to be the same as the value of each share of our stock. We intend to exchange units of limited partnership interest in our operating partnership for properties based on the appraised value of the property or such lesser amount to which we and the seller of the property agree.

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      The limited partnership agreement provides that our operating partnership will distribute cash flow from operations to its partners in accordance with their relative percentage interests on at least a quarterly basis in amounts we, as general partner, determine. The effect of these distributions will be that a holder of one unit of limited partnership interest in our operating partnership will receive the same amount of annual cash flow distributions as the amount of annual distributions made to the holder of one of our shares.

      Similarly, the limited partnership agreement provides that profits and taxable income are allocated to the partners of our operating partnership in accordance with their relative percentage interests. Subject to compliance with the provisions of Sections 704(b) and 704(c) of the Code and corresponding Treasury Regulations, the effect of these allocations will be that a holder of one unit of limited partnership interest in our operating partnership will be allocated, to the extent possible, taxable income for each taxable year in an amount equal to the amount of taxable income to be recognized by a holder of one of our shares. Losses, if any, will generally be allocated among the partners in accordance with their respective percentage interests in our operating partnership. Losses cannot be passed through to our stockholders.

      If our operating partnership liquidates, debts and other obligations must be satisfied before the partners may receive any distributions. Any distributions to partners then will be made to partners in accordance with their respective positive capital account balances.

Rights, Obligations and Powers of the General Partner

      As our operating partnership’s general partner, we generally have complete and exclusive discretion to manage and control our operating partnership’s business and to make all decisions affecting its assets. This authority generally includes, among other things, the authority to:

•  acquire, purchase, own, operate, lease and dispose of any real property and any other property;

•  construct buildings and make other improvements on owned or leased properties;

•  authorize, issue, sell, redeem or otherwise purchase any debt or other securities;

•  borrow money;

•  make or revoke any tax election;

•  maintain insurance coverage in amounts and types as we determine is necessary;

•  retain employees or other service providers;

•  form or acquire interests in joint ventures; and

•  merge, consolidate or combine our operating partnership with another entity.

      Our operating partnership will pay or cause our advisor to be reimbursed for all the administrative and operating costs and expenses it incurs in acquiring and operating real properties. Our operating partnership also will pay or cause our advisor to be reimbursed for all of our administrative costs and expenses and such expenses will be treated as expenses of our operating partnership. Such expenses will include:

•  all expenses relating to our formation and continuity of existence;

•  all expenses relating to the public offering and registration of our securities;

•  all expenses associated with the preparation and filing of our periodic reports under federal, state or local laws or regulations;

•  all expenses associated with our compliance with applicable laws, rules and regulations; and

•  all of our other operating or administrative costs incurred in the ordinary course of business.

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      The only costs and expenses we may incur for which we will not be reimbursed by our operating partnership will be costs and expenses relating to properties we may own outside of our operating partnership. We will pay the expenses relating to such properties directly.

Exchange Rights

      Upon the admission of additional limited partners, if any, the limited partners of our operating partnership have the right to cause our operating partnership to redeem their limited partnership units for cash equal to the value of an equivalent number of our shares, or, at our option, we may purchase their limited partnership units by issuing one share of our common stock for each limited partnership unit redeemed. These exchange rights may not be exercised, however, if and to the extent that the delivery of stock upon such exercise would:

•  result in any person owning stock in excess of the ownership limit in our charter (unless exempted by our board of directors);

•  result in our stock being owned by fewer than 100 persons;

•  result in us being “closely held” within the meaning of Section 856(h) of the Code; or

•  cause us to own 10% or more of the ownership interests in a tenant within the meaning of Section 856(d)(2)(B) of the Code.

      Furthermore, limited partners may exercise their exchange rights only after their limited partnership units have been outstanding for one year. A limited partner may not deliver more than two exchange notices each calendar year and may not exercise an exchange right for less than 1,250 limited partnership units, unless such limited partner holds less than 1,250 units. In that case, he must exercise his exchange right for all of his units.

      Limited partners exchange their limited partnership units for our shares based on the conversion ratio set forth in the operating partnership agreement. The conversion ratio is initially one to one but is adjusted based on certain events including:

•  if we declare or pay a distribution in stock (other than the special 10% stock distribution) on our outstanding stock;

•  if we subdivide our outstanding stock; or

•  if we combine our outstanding stock into a smaller number of shares.

Change in General Partner

      We are generally not allowed to withdraw as the general partner of our operating partnership or transfer our general partnership interest in our operating partnership (except to a wholly owned subsidiary). The principal exception to this is if we merge with another entity and (1) the holders of a majority of partnership units (including those we hold) approve the transaction; (2) the limited partners receive or have the right to receive an amount of cash, securities or other property equal in value to the amount they would have received if they had exercised their exchange rights immediately before such transaction; (3) we are the surviving entity and our stockholders do not receive cash, securities, or other property in the transaction; or (4) the successor entity contributes substantially all of its assets to our operating partnership in return for an interest in our operating partnership and agrees to assume all obligations of the general partner of our operating partnership. If we voluntarily seek protection under bankruptcy or state insolvency laws, or if we are involuntarily placed under such protection for more than 90 days, we would be deemed to be automatically removed as the general partner. Otherwise, the limited partners have no right to remove us as general partner.

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Transferability of Interests

      With certain exceptions, the limited partners may not transfer their interests in our operating partnership, in whole or in part, without our written consent as the general partner. In addition, pursuant to our charter our advisor may not transfer its interest in our operating partnership as long as it is acting as our advisor.

Amendment of Limited Partnership Agreement

      An amendment to the limited partnership agreement requires the consent of the holders of a majority of the partnership units (including the partnership units we hold). Additionally, we, as general partner, must approve any amendment. However, certain amendments require the consent of the holders of a majority of the partnership units (excluding the partnership units we or one of our affiliates holds). Such amendments include:

•  any amendment affecting the exchange right to the detriment of the limited partners (except for certain business combinations where we merge with another entity and leave our operating partnership in existence to hold all the assets of the surviving entity);

•  any amendment that would adversely affect the limited partners’ rights to receive distributions, except for amendments we make to create and issue preferred partnership units;

•  any amendment that would alter how we allocate profits and losses, except for amendments we make to create and issue preferred partnership units; and

•  any amendment that would impose on the limited partners any obligation to make additional capital contributions.

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PLAN OF DISTRIBUTION

General

      We are publicly offering a maximum of 55,400,000 shares through Pacific Cornerstone Capital, Inc., our dealer manager, a registered broker-dealer affiliated with our advisor. Of this amount, we are offering 44,400,000 shares in our primary offering at a price of $8 per share (except as noted below) on a “best efforts” basis, which means that the dealer manager must use only its best efforts to sell the stock and has no firm commitment or obligation to purchase any of the stock. We are offering the remaining 11,000,000 shares through our distribution reinvestment plan at a purchase price of $7.20 per share. Our primary offering of 44,400,000 shares will terminate on or before                     , 2007 (two years after the effective date of this prospectus). We reserve the right to terminate the primary offering or the distribution reinvestment plan offering at any time.

Compensation of Dealer Manager and Participating Broker-Dealers

      Except as provided below, Pacific Cornerstone Capital, Inc., our dealer manager and affiliate, will receive sales commissions of up to 7% of the gross offering proceeds for stock sold in our primary offering. Except for stock sold under our distribution reinvestment plan, for which there will be no dealer manager fee, and in other instances described below, the dealer manager will receive up to 3% of the gross offering proceeds from our primary offering as compensation for managing and coordinating the offering, working with participating broker-dealers and providing sales and marketing assistance. The dealer manager will pay all wholesaling costs, including but not limited to the salaries and commissions of its wholesalers, out of the dealer manager fee. We will not pay referral or similar fees to any accountants, attorneys or other persons in connection with the distribution of the stock.

      We currently expect the dealer manager to use multiple channels to sell our stock, each of which has a different sales commission and dealer manager fee structure.

      Sales Through Broker Dealers. The dealer manager may sell our stock and may also authorize other broker-dealers that are members of the NASD, which we refer to as participating broker-dealers, to sell our stock. Our dealer manager will enter into participating broker agreements with the participating broker-dealers, and will re-allow all of the sales commissions paid in connection with sales made by these participating broker-dealers. If both the participating broker-dealer and the investor agree, the sales commissions can be paid on a deferred basis. See “Deferred Commission Option” below.

      The dealer manager may re-allow to participating broker-dealers a portion of the dealer manager fee earned on the proceeds raised by the participating broker-dealers as marketing fees, reimbursement of the costs and expenses of attending training and education meetings sponsored by our dealer manager, payment of attendance fees required for employees of our dealer manager or other affiliates to attend retail seminars and public seminars sponsored by participating broker-dealers, or to defray other distribution-related expenses. The marketing fees portion of the re-allowance will be paid to any particular participating broker-dealer based upon the projected volume of sales, the amount of marketing assistance and level of marketing support provided by such participating broker-dealer in other similar REIT offerings in the past and the anticipated level of marketing support to be provided in this offering.

      We will pay an additional amount of up to 0.5% of gross offering proceeds as reimbursements to the dealer manager and participating broker-dealers for bona fide due diligence expenses incurred by the dealer manager and such participating broker-dealers in discharging their responsibility to ensure that all material facts pertaining to this offering are adequately and accurately disclosed in the prospectus. Such reimbursement of due diligence expenses may include travel, lodging, meals and other reasonable out-of-pocket expenses incurred by participating broker-dealers and their personnel when visiting our office to verify information relating to us and this offering and, in some cases, reimbursement of actual costs of third-party professionals retained to provide due diligence services to the dealer manager and participating broker-dealers. We or our dealer manager shall have the right to require that any participating broker-dealer provide a detailed and itemized invoice for any such due diligence expenses.

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      Sales To Affiliates of Participating Broker-Dealers. We may sell stock in our primary offering to participating broker-dealers, their retirement plans, their representatives and the family members, IRAs and qualified plans of their representatives for $7.44 per share, reflecting that sales commissions in the amount of $0.56 per share will not be payable in consideration of the services rendered by such broker-dealers and representatives in the offering. For purposes of this reduced price, we consider a family member to be a spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in law or brother- or sister-in-law. The net proceeds to us from such sales made net of commissions will be substantially the same as the net proceeds we receive from other sales of stock.

      Sales Through Fee-for-Service Investment Advisors. Our stock will also be distributed through registered investment advisory representatives who are generally compensated on a fee-for-service basis by the investor. In the event of the sale of stock in our primary offering through an investment advisory representative compensated on a fee-for-service basis by the investor, the dealer manager will waive its right to a commission and a portion of the dealer manager fee, and we will sell such stock for $7.40 per share, reflecting that sales commissions and a portion of the dealer manager fee in the amount of $0.60 per share will not be payable.

      Sales to our Affiliates. Our directors and officers, as well as directors, officers and employees of our advisor or its affiliates, including sponsors and consultants, may purchase stock in our primary offering at a reduced price. The purchase price for such stock shall be $7.20 per share reflecting the fact that sales commissions and dealer manager fees in the aggregate amount of $0.80 per share which will not be payable in connection with such sales. The net proceeds to us from such sales made net of commissions will be substantially the same as the net proceeds we receive from other sales of stock. Our advisor and its affiliates are expected to hold their stock purchased as stockholders for investment and not with a view towards distribution. Sales to our affiliates will not count toward the minimum offering amount.

      Sales Pursuant to Our Distribution Reinvestment Plan. There are no sales commissions paid for sales under the distribution reinvestment plan. The purchase price for all purchases under the distribution reinvestment plan is $7.20 per share.

      Any reduction in commissions in instances where lesser or no commissions or dealer manager fees are paid by us in connection with the sale of our stock will reduce the effective purchase price per share of stock to the investor involved but will not alter the net proceeds payable to us as a result of such sale. Distributions will be the same with respect to all share of stock whether or not the purchaser received a discount. Investors for whom we pay reduced commissions or dealer manager fees will receive higher returns on their investments in our stock as compared to investors for whom we do not pay reduced commissions and dealer manager fees.

      In accordance with the rules of the NASD, in no event will our total underwriting compensation, including but not limited to sales commissions, the dealer manager fee and expense reimbursements to our dealer manager and participating broker-dealers, exceed 10% of our gross offering proceeds, in the aggregate, except for an additional amount of up to 0.5% of gross offering proceeds which may be paid for bona fide due diligence expenses. We may also reimburse the advisor for all expenses incurred by the advisor, the dealer manager and their affiliates in connection with this offering and our organization. The NASD and many states also limit our total organization and offering expenses to 15% of gross offering

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proceeds. In no event will our total organization and offering expenses exceed the levels set forth in the following table:

Organization and Offering Expenses

		Maximum Percent
		of Gross
Expense		Offering Proceeds
Sales commissions			7.0	%
Dealer manager fee(1)			3.0	%
All other organization and offering expenses(1)(2)			5.0	%
	Maximum we will pay		15.0	%

(1)	Payable only on gross proceeds from our primary offering
(2)	Includes allowance for bona fide due diligence expenses.

      Our dealer manager employs wholesalers who attend local, regional and national conferences of the participating broker-dealers and who contact participating broker-dealers and their registered representatives to make presentations concerning us and this offering and to encourage them to sell our stock. The wholesalers receive base salaries and bonuses as compensation for their efforts. Our dealer manager sponsors training and education meetings for broker-dealers and their representatives. Our dealer manager will pay the travel, lodging and meal costs of invitees. The other costs of the training and education meetings will be borne by Cornerstone-sponsored programs, including us. Our estimated costs associated with these training and education meetings are included in our estimates of our organization and offering expenses.

      We will indemnify the participating broker-dealers and the dealer manager against some civil liabilities, including certain liabilities under the Securities Act and liabilities arising from breaches of our representations and warranties contained in the participating broker agreement. If we are unable to provide this indemnification, we may contribute to payments the indemnified parties may be required to make in respect of those liabilities.

Deferred Commission Option

      Purchasers in this offering may agree with their participating broker-dealers and the dealer manager to have sales commissions due with respect to the purchase of their stock paid over a six year period pursuant to a deferred commission arrangement. In these instances, we will sell our shares at a reduced price and pay the participating broker-dealer a correspondingly reduced sales commission at the time of sale. The balance of the normal commission would be paid to the broker-dealer over six years out of the distributions that are declared and paid with respect to the reduced-priced shares sold through such broker-dealer. We have no obligation to pay the deferred commission. Our sole obligation is to remit payments to the participating broker-dealers and the dealer manager from funds otherwise payable to the stockholder who agreed to the deferred commission arrangement. In effect, the investor would pay the balance of the regular purchase price on a deferred basis by having future distributions reduced by the amount of the reduction in the original purchase price of the shares. The amount by which by the investor’s distributions are reduced in these cases would be paid to the broker-dealer as deferred commissions.

      More specifically, purchasers electing the deferred commission option will pay, on the date of purchase, $7.52 per share (rather than $8 per share) which includes a commission of $0.08 per share. For a period of six years following the date of purchase, an additional $0.08 per share will be deducted annually from distributions or other cash distributions otherwise payable to the purchaser and will be used to pay deferred commissions. The net proceeds to us will not be affected by the election of the deferred commission option. Under this arrangement, a stockholder electing the deferred commission option will pay a 1% commission upon subscription, rather than a 7% commission, and an amount equal to a 1%

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commission per year thereafter for the next six years, or longer if required to satisfy outstanding deferred commission obligations, will be deducted from distributions or other cash distributions otherwise payable to such stockholder. We may also use other deferred commission structures, but we will not pay total commissions in excess of 7% of the offering price of our common stock.

      Stockholders electing the deferred commission option who are subject to United States federal income taxation will incur tax liability for distributions otherwise payable to them with respect to their shares even though such distributions will be withheld and will instead be paid to satisfy commission obligations.

      Investors who wish to elect the deferred commission option should make the election by checking the designated box on their Subscription Agreement. Electing the deferred commission option will authorize us to withhold distributions otherwise payable to such stockholder for the purpose of paying commissions due under the deferred commission option. We will not withhold more than $0.48 per share in the aggregate under the deferred commission option.

      If at any time prior to the satisfaction of our remaining deferred commission obligations, we decide to list our shares for trading on national securities exchange or the Nasdaq National Market, or we begin a liquidation of our properties, we may accelerate the remaining commissions due under the deferred commission option. In either case, we will provide notice of any such acceleration to stockholders who have elected the deferred commission option. In the event of listing, we will pay the amount of the remaining commissions due and deduct such amount from distributions otherwise payable to such stockholders during the time period prior to listing. To the extent that the distributions during such time period are insufficient to satisfy the remaining commissions due, the obligations of us and our stockholders to pay any further deferred commissions will terminate, and participating broker-dealers will not be entitled to receive any further portion of their deferred commissions following listing of our common stock. In the event of a liquidation of our properties, we will pay the amount of remaining commissions and deduct such amount from distributions or net sales proceeds otherwise payable to stockholders who are subject to any such acceleration of their deferred commission obligations.

Subscription Procedures

      We will not complete the sale of any shares of stock unless we sell a minimum of $1,000,000 of our stock by                     , 2006 (one year from the effective date of this prospectus). Pending satisfaction of this condition, all subscription payments will be placed in an account held by the escrow agent, U.S. Bank, N.A., in trust for the subscribers’ benefit, pending release to us. If we do not sell at least $1,000,000 of stock to the public by                     , 2006, we will return all funds in the escrow account (including interest), and we will stop selling stock.

      To purchase stock in this offering, you must complete the subscription agreement, a sample of which is contained in this prospectus as Appendix A. You should pay for your stock by check payable to “Cornerstone Core Properties REIT, Inc.” Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part. After meeting the applicable minimum offering requirements, subscription payments will be deposited into a special account in our name under the joint authorization of the dealer manager and us until such time as we have accepted or rejected the subscription. Subscriptions will be accepted or rejected within 30 days of receipt by us and, if rejected, all funds shall be returned to the rejected subscribers within 10 business days thereafter. If accepted, the funds will be transferred into our general account. We may not accept a subscription for stock until at least five business days after the date you receive this prospectus. You will receive a confirmation of your subscription. We generally accept investments from stockholders on a daily basis.

      Investors who desire to purchase stock during the offering period at regular intervals may be able to do so through their participating broker-dealer or, if they are investing in this offering other than through a participating broker-dealer, through the dealer manager by completing an automatic investment plan enrollment form. Participation in the automatic investment plan is limited to investors who have already met the minimum purchase requirement in this offering of $2,000 (or $1,000 for IRAs and tax-qualified

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retirement plans). The minimum periodic investment is $100 per month. The opportunity to make periodic investments under the automatic investment plan is available only during the offering period.

      We will provide a confirmation of your monthly purchases under the automatic investment plan within five business days after the end of each month. The confirmation will disclose the following information:

•  the amount of the investment;

•  the date of the investment; and

•  the number and price of the shares purchased by you; and

•  the total number of shares in your account.

      We will pay the same commissions, dealer manager fees and other offering expenses in connection with sales made under the automatic investment plan that we pay in connection with all other sales made in our primary offering of 44,400,000 shares, of which shares issued under the automatic investment plan are included. For this reason, at the time you complete your enrollment form for the automatic investment plan, you must still be associated with a participating broker-dealer and identify your registered representative and participating broker-dealer on your enrollment form. For purchases made after you enroll, unless we are notified in writing that you have changed your broker-dealer firm, we will continue to pay sales commissions and dealer manager fees to the broker-dealer you identified on your enrollment form.

      You may terminate your participation in the automatic investment plan at any time by providing us with written notice. Your participation in the plan will also terminate should you no longer meet the suitability standards described above at “Suitability Standards” immediately following the cover page of this prospectus.

Suitability Standards

      The shares we are offering are suitable only as a long-term investment. Because there is no public market for the shares, an investment in our stock is considered illiquid and you will have difficulty selling your stock. In consideration of these factors, we require initial stockholders and subsequent purchasers to have either:

•  a net worth of at least $150,000; or

•  gross annual income of at least $45,000 and a net worth of at least $45,000.

      Residents of Arizona, California, Kansas, Maine, Massachusetts, Michigan, New Mexico, Ohio, Pennsylvania and Tennessee must meet higher suitability standards which are set forth under “Suitability Standards” on pages i and ii at the beginning of this prospectus and in the appendix to the subscription agreement.

      For purposes of determining suitability of an investor, net worth in all cases should be calculated excluding the value of an investor’s home, home furnishings and automobiles. In the case of sales to fiduciary accounts, these suitability standards must be met by the fiduciary account, by the person who directly or indirectly supplied the funds for the purchase of the stock if such person is the fiduciary or by the beneficiary of the account.

      Those selling stock on our behalf have the responsibility to make every reasonable effort to determine that the purchase of stock in this offering is a suitable and appropriate investment based on information provided by the stockholder regarding the stockholder’s financial situation and investment objectives. In making this determination, those selling stock on our behalf have a responsibility to ascertain that the prospective stockholder:

•  meets the applicable minimum income and net worth standards set forth under “Suitability Standards” immediately following the cover page of this prospectus;

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•  can reasonably benefit from an investment in our stock based on the prospective stockholder’s overall investment objectives and portfolio structure;

•  is able to bear the economic risk of the investment based on the prospective stockholder’s overall financial situation; and

•  has apparent understanding of:

•  the fundamental risks of the investment;

•  the risk that the stockholder may lose the entire investment;

•  the lack of liquidity of the stock;

•  the restrictions on transferability of the stock;

•  the background and qualifications of our advisor and its affiliates; and

•  the tax consequences of the investment.

      Relevant information for this purpose will include at least the age, investment objectives, investment experience, income, net worth, financial situation and other investments of the prospective stockholder, as well as any other pertinent factors. Those selling stock on our behalf must maintain, for a six-year period, records of the information used to determine that an investment in stock is suitable and appropriate for each stockholder.

Minimum Purchase Requirements

      For your initial purchase, you must invest at least $2,000, except for IRAs, Keoghs and tax-qualified retirement plans which must invest a minimum of $1,000. In order to satisfy the minimum purchase requirement for retirement plans, unless otherwise prohibited by state law, a husband and wife may jointly contribute funds from their separate IRAs, provided that each such contribution is made in increments of $100. You should note that an investment in our stock will not, in itself, create a retirement plan and that, in order to create a retirement plan, you must comply with all applicable provisions of the Internal Revenue Code.

      Until our stock is listed on a national securities exchange, you may not transfer your stock in a manner that causes you or your transferee to own fewer than the number of shares of stock required for the minimum purchase described above, except in the following circumstances: transfers by gift; transfers by inheritance; intrafamily transfers; family dissolutions; transfers to affiliates; and by operation of law.

Special Notice to Pennsylvania Investors

      Because the minimum offering of our common stock is less than $17,760,000, you are cautioned to evaluate carefully our ability to fully accomplish our stated objectives and to inquire as to the current dollar volume of our subscription proceeds. Notwithstanding our $1,000,000 minimum offering amount for all other jurisdictions, we will not sell any shares to Pennsylvania investors unless we raise a minimum of $17,760,000 in gross offering proceeds (including sales made to residents of other jurisdictions). Pending satisfaction of this condition, all Pennsylvania subscription payments will be placed in an account held by the escrow agent,                     , in trust for Pennsylvania subscribers’ benefit, pending release to us. If we have not reached this $17,760,000 threshold within 120 days of the date that we first accept a subscription payment from a Pennsylvania investor, we will, within 10 days of the end of that 120-day period, notify Pennsylvania investors in writing of their right to receive refunds, without interest. If you request a refund within 10 days of receiving that notice, we will arrange for the escrow agent to return promptly by check the funds deposited in the Pennsylvania escrow account (or to return your check if the escrow agent has not yet collected on it) to each subscriber. Amounts held in the Pennsylvania escrow account from Pennsylvania investors not requesting a refund will continue to be held for subsequent 120-day periods until we raise at least $17,760,000 or until the end of the subsequent escrow periods. At the end of each

112

subsequent escrow period, we will again notify you of your right to receive refunds with interest from the day after the expiration of the initial 120-day period.

SUPPLEMENTAL SALES MATERIAL

      In addition to this prospectus, we may use certain sales material in connection with the offering of the stock, although only when accompanied by or preceded by the delivery of this prospectus. These supplemental sales materials may include information relating to this offering, the past performance of our advisor, and its affiliates, property brochures and articles and publications concerning real estate. In certain jurisdictions, some or all of our supplemental sales material may not be permitted.

      We are offering stock only by means of this prospectus. Although the information contained in our supplemental sales materials will not conflict with any of the information contained in this prospectus, the supplemental materials do not purport to be complete and should not be considered a part of or as incorporated by reference in this prospectus or the registration statement of which this prospectus is a part.

LEGAL MATTERS

      Certain legal matters will be passed upon for us by Preston Gates & Ellis LLP, Irvine, California. The statements under the caption “Federal Income Tax Consequences” as they relate to federal income tax consequences have been reviewed by Preston Gates & Ellis LLP, Seattle, Washington and Preston Gates & Ellis LLP, Seattle, Washington has given us its opinion as to certain federal income tax matters relating to an investment in our shares of stock. Preston Gates & Ellis LLP, Irvine, California, has also represented our advisor, as well as various other affiliates of our advisor, in other matters and may continue to do so in the future. The legality of the shares being offered hereby has been passed upon for us by Venable LLP.

EXPERTS

      Our consolidated balance sheets at July 15, 2005 and December 31, 2004, appearing in this registration statement and related prospectus, has been audited by BDO Seidman, LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and is included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

      We have filed a registration statement on Form S-11 with the SEC with respect to the shares of our common stock to be issued in the offering. This prospectus is a part of that registration statement and, as allowed by SEC rules, does not include all of the information you can find in the registration statement or the exhibits to the registration statement. For additional information relating to us, we refer you to the registration statement and the exhibits to the registration statement. Statements contained in this prospectus as to the contents of any contract or document referred to are necessarily summaries of such contract or document and in each instance, if the contract or document is filed as an exhibit to the registration statement, we refer you to the copy of the contract or document filed as an exhibit to the registration statement.

      After commencement of the offering, we will file annual, quarterly and special reports, proxy statements and other information with the SEC. We intend to furnish our stockholders with annual reports containing consolidated financial statements certified by an independent public accounting firm. The registration statement is, and any of these future filings with the SEC will be, available to the public over the Internet at the SEC’s website at http://www.sec.gov. You may read and copy any filed document at the SEC’s public reference room in Washington, D.C. at 450 Fifth Street, N.W., Judiciary Plaza,

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Washington D.C. Please call the SEC at (800) SEC-0330 for further information about the public reference rooms.

      We also maintain an Internet site at http://www.info@cornerstonerealtyfunds.com at which there is additional information about us and our affiliates, but the contents of that site are not incorporated by reference in or otherwise a part of this prospectus.

ELECTRONIC DELIVERY OF DOCUMENTS

      Subject to availability, you may authorize us to provide prospectuses, prospectus supplements, annual reports and other information (“documents”) electronically by so indicating on the subscription agreement, or by sending us instructions in writing in a form acceptable to us to receive such documents electronically. You must have internet access to use this service. While we impose no additional charge for this service, there may be potential costs associated with electronic delivery, such as on-line charges. Documents will be available on our Internet web site. You may access and print all documents provided through this service. As documents become available, we will notify you of this by sending you an e-mail message that will include instructions on how to retrieve the document. If our e-mail notification is returned to us as “undeliverable,” we will contact you to obtain your updated e-mail address. If we are unable to obtain a valid e-mail address for you, we will resume sending a paper copy by regular U.S. mail to your address of record. You may revoke your consent for electronic delivery at any time and we will resume sending you a paper copy of all required documents. However, in order for us to be properly notified, your revocation must be given to us a reasonable time before electronic delivery has commenced. We will provide you with paper copies at any time upon request. Such request will not constitute revocation of your consent to receive required documents electronically.

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INDEX TO CONSOLIDATED BALANCE SHEETS AND

PRIOR PERFORMANCE TABLES

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Notes to Consolidated Balance Sheets	F-4
Prior Performance Tables	P-1

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Director and Stockholder
Cornerstone Core Properties REIT, Inc. and subsidiary

      We have audited the accompanying consolidated balance sheets of Cornerstone Core Properties REIT, Inc. (the “Company”) as of July 15, 2005 and December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether these consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated balance sheet presentation. We believe that our audits of the consolidated balance sheets provide a reasonable basis for our opinion.

      In our opinion, the consolidated balance sheets referred to above present fairly, in all material respects, the financial position of Cornerstone Core Properties REIT, Inc. at July 15, 2005 and December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO SEIDMAN, LLP

Costa Mesa, California

August 1, 2005

F-2

CORNERSTONE CORE PROPERTIES REIT, INC.

CONSOLIDATED BALANCE SHEETS

			July 15,		December 31,
			2005		2004
ASSETS
Cash			$	201,000	$	1,000
		Total Assets	$	201,000	$	1,000
LIABILITIES AND STOCKHOLDER’S EQUITY
Minority Interest			$	200,000	$	—
Stockholder’s Equity
	Common stock, $.001 par value; 1,000 shares authorized, 125 shares issued and outstanding			—		—
	Additional paid-in capital			1,000		1,000
		Total Stockholder’s Equity		201,000		1,000
		Total Liabilities and Stockholder’s Equity	$	201,000	$	1,000

See accompanying notes.

F-3

CORNERSTONE CORE PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED BALANCE SHEETS

1. Organization

      Cornerstone Core Properties REIT, Inc., a Maryland corporation (the “Company”), was formed on October 22, 2004 under the General Corporation Law of Maryland for the purpose of engaging in the business of investing in and owning commercial real estate. The Company is newly formed and is subject to the general risks associated with a start-up enterprise, including the risk of business failure. Subject to certain restrictions and limitations, the business of the Company is expected to be managed by Cornerstone Realty Advisors, LLC, a proposed Delaware limited liability company that is currently in the process of formation (the “Advisor”), an affiliate of the Company, pursuant to the Advisory Agreement the Company anticipates executing with the Advisor.

      On November 9, 2004, the sole stockholder, Terry G. Roussel, an affiliate of the Advisor, purchased 125 shares of common stock for $1,000 and was admitted as the initial stockholder of the Company. The Company’s board of directors intends to amend the Company’s articles of incorporation to authorize 289,000,000 additional shares of common stock with a par value of $.001 and 10,000,000 shares of preferred stock with a par value of $.001. The Company intends to then offer a minimum of 125,000 (the “Minimum Number of Shares”) and a maximum of 55,400,000 shares of common stock for sale to the public, consisting of 44,400,000 shares for sale to the public (the “Primary Offering”) and 11,000,000 shares for sale pursuant to the Company’s proposed distribution reinvestment plan (collectively, the “Offering”). Through the Dealer Manager Agreement which the Company expects to execute, the Company will retain Pacific Cornerstone Capital, Inc. (“PCC”), an affiliate of the Advisor, to serve as the dealer manager for the Offering. PCC will be responsible for marketing the Company’s shares being offered pursuant to the Offering. The Company intends to invest the net proceeds from the Offering primarily in investment real estate including multi-tenant industrial real estate located in major metropolitan markets in the United States. As of August 1, 2005, the Company has neither purchased nor contracted to purchase any properties, nor has the Advisor identified any properties in which there is a reasonable probability that the Company will invest.

      Cornerstone Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”) was formed on November 30, 2004. On July 15, 2005, the Advisor purchased a 99% limited partnership interest (totaling 25,000 limited partner units) in the Operating Partnership for $200,000 and the Company purchased a 1% general partner interest for $1,000. The Company anticipates that it will conduct a portion of its operations through the Operating Partnership.

      Within five years from the closing of the Offering, the proposed amendment to the Company’s Articles would require the Company’s board of directors to take one or more of the following actions to provide enhanced liquidity for the Company’s stockholders:

•  modify the Company’s stock repurchase program to allow us to use proceeds from the sale of the Company’s properties to redeem shares;

•  seek stockholder approval to begin an orderly liquidation of the Company’s assets and distribute the available proceeds of such sales to the Company’s stockholders;

•  list the Company’s stock for trading on a national securities exchange, the Nasdaq National Market or other over-the-counter market; or

•  seek stockholder approval of another liquidity event such as a sale of the Company’s assets or a merger with another entity.

F-4

CORNERSTONE CORE PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED BALANCE SHEETS — (Continued)

2. Summary of Significant Accounting Policies

Cash and Cash Equivalents

      The Company considers all short-term, highly liquid investments that are readily convertible to cash with a maturity of three months or less at the time of purchase to be cash equivalents.

Real Estate Purchase Price Allocation

      The Company will account for all acquisitions in accordance with Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standard No. 141, “Business Combinations” (“FAS 141”). Upon acquisition of a property, the Company will allocate the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, buildings, tenant improvements, leasing commissions and intangible assets including in-place leases and above market and below market leases. The Company will allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. Acquired above and below market leases will be valued based on the present value of the difference between prevailing market rates and the in-place rates over the remaining lease term.

      The purchase price will be further allocated to in-place lease values based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. The value of acquired above and below market leases will be amortized over the remaining non-cancelable terms of the respective leases as an adjustment to rental revenue on the Company’s consolidated statements of operations. The value of in-place lease intangibles, which will be included as a component of other assets, will be amortized to expense over the remaining lease term of the respective lease. If a lease is terminated prior to expiration, the unamortized portion of the tenant improvements, leasing commissions, above and below market leases and the in-place lease value will be immediately charged to expense.

Evaluation of Possible Impairment of Real Property Assets

      Management will continually monitor events and changes in circumstances that could indicate that the carrying amounts of the Company’s real estate assets, including those held through joint ventures, may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of real estate assets may not be recoverable, the Company will assess the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, the Company will adjust the real estate assets to the fair value and recognize an impairment loss.

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

Consolidation Considerations for the Company’s Investments in Joint Ventures

      The FASB issued Interpretation No. 46 (“FIN 46R”) (revised December 2003), “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (“ARB 51”), which addresses how a business enterprise should evaluate whether it has a controlling interest in an entity

F-5

CORNERSTONE CORE PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED BALANCE SHEETS — (Continued)

through means other than voting rights and accordingly should consolidate the entity. Before concluding that it is appropriate to apply the ARB 51 voting interest consolidation model to an entity, an enterprise must first determine that the entity is not a variable interest entity (VIE). The Company will evaluate, as appropriate, its interests, if any, in joint ventures and other arrangements to determine if consolidation is appropriate.

Revenue Recognition and Valuation of Receivables

      The Company’s revenues, which will be comprised largely of rental income, will include rents reported on a straight-line basis over the initial term of the lease. Since the Company’s leases may provide for rental increases at specified intervals, the Company will be required to straight-line the recognition of revenue, which will result in the recording of a receivable for rent not yet due under the lease terms. Accordingly, the Company’s management will be required to determine, in its judgment, to what extent the unbilled rent receivable applicable to each specific tenant is collectible. Management of the Company will review unbilled rent receivable on a quarterly basis and take into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of unbilled rent with respect to any given tenant is in doubt, the Company will record an increase in the Company’s allowance for doubtful accounts or record a direct write-off of the specific rent receivable.

Depreciation of Real Property Assets

      The Company will be required to make subjective assessments as to the useful lives of the Company’s depreciable assets. The Company will consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The Company anticipates the estimated useful lives of its assets by class to be as follows:

Building	39 years
Building improvements	10-25  years
Land improvements	20-25  years
Tenant Improvements	Lease term

      Depreciation of the Company’s assets is expected to be charged to expense on a straight-line basis over the assigned useful lives.

Organizational and Offering Costs

      Organizational and offering costs of the Company are expected to be paid by the Advisor on behalf of the Company. Organizational and offering costs are any and all costs and expenses incurred by the Company, the Advisor or any affiliate of either in connection with and in preparing the Company for registration of and subsequently offering and distributing its common stock to the public, which may include but are not limited to total underwriting and brokerage discounts and commissions (including fees of the underwriters’ attorneys), legal, accounting and escrow fees, expenses for printing, engraving, amending, supplementing and mailing, distribution costs, compensation to employees while engaged in registering, marketing and wholesaling the common stock, telegraph and telephone costs, all advertising and marketing expenses (including the costs related to investor and broker-dealer sales meetings), charges of transfer agents, registrars, trustees, escrow holders, depositories, experts, and fees, expenses and taxes related to the filing, registration and qualification of the sale of the securities under Federal and State laws, including accountants’ and attorneys’ fees and other accountable offering expenses. In no event will the Company have any obligation to reimburse the Advisor or PCC for organizational and offering costs (not

F-6

CORNERSTONE CORE PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED BALANCE SHEETS — (Continued)

including sales commissions, the dealer manager fee or non-accountable due diligence expense allowance) totaling in excess of 5% of the gross proceeds from the Primary Offering. In the event that the Minimum Number of Shares of the Company’s common stock is not sold to the public, the Company will terminate the Offering and will have no obligation to reimburse the Advisor or PCC for any organizational and offering costs. As of July 15, 2005 and December 31, 2004, the Advisor had incurred on behalf of the Company organizational and offering costs of approximately $1.8 million (unaudited) and $1.0 million (unaudited), respectively. These costs are not recorded in the accompanying balance sheets of the Company as of July 15, 2005 and December 31, 2004 because such costs are not a liability of the Company until the Advisory Agreement is executed, the terms related to the reimbursement of such costs are determined and the Minimum Number of Shares are sold. When recorded by the Company, organizational costs will be expensed as incurred, and offering costs will be deferred and charged to stockholders’ equity as such amounts are reimbursed to the Advisor or PCC from the gross proceeds of the Offering.

      PCC, as Dealer Manager, is expected to be entitled to receive a sales commission of up to 7% of gross proceeds from sales in the Primary Offering. PCC, as Dealer Manager, is also expected to be entitled to receive a dealer manager fee equal to up to 3% of gross proceeds from sales in the Primary Offering. The Dealer Manager is also expected to receive a bona fide due diligence expense reimbursement allowance equal to 0.5% of the gross proceeds from sales in the Primary Offering. In addition, the Advisory Agreement is expected to require the Advisor to pay any organization and offering expenses (including sales commissions, dealer manager fee and non-accountable due diligence expense allowance but not the acquisition fees and acquisition expenses discussed below) to the extent that they are in excess of 15% of gross proceeds from the Offering.

Acquisition Fees and Expenses

      The Advisory Agreement is expected to require the Company to pay the Advisor acquisition fees in an amount equal to 2% of the gross proceeds of the Primary Offering. The Company will pay the acquisition fees upon receipt of the gross proceeds from the Offering. However, if the Advisory Agreement is terminated or not renewed, the Advisor must return acquisition fees not yet allocated to one of the Company’s investments. In addition, the Company is required to reimburse the Advisor for direct costs the Advisor incurs and amounts the Advisor pays to third parties in connection with the selection and acquisition of a property, whether or not ultimately acquired. The Company’s charter provides that a majority of the Company’s independent directors would have to approve any increase in the acquisition fees payable to the Advisor above 2% of gross proceeds from the Primary Offering. The Company’s charter also limits the Company’s ability to purchase a property if the total of all acquisition fees and expenses relating to the purchase exceeds 6% of the contract purchase price.

Management Fees

      The Advisory Agreement is expected to require the Company to pay the Advisor a monthly asset management fee of one-twelfth of 1% of the sum of the Average Invested Assets. In addition, the Company will reimburse the Advisor for the direct costs and expenses incurred by the Advisor in providing asset management services to the Company. These fees and expenses are in addition to management fees that we expect to pay to third party property managers. The Advisor must reimburse the Company the amount by which the Company’s aggregate annual Operating Expenses exceed the greater of 2% of Company’s Average Invested Assets or 25% of the Company’s net income unless a majority of the Company’s independent directors determine that such excess expenses were justified based on unusual and non-recurring factors. “Average Invested Assets” means, for a specified period, the average of the aggregate book value of the Company’s assets invested, directly or indirectly, in equity interests in and loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash

F-7

CORNERSTONE CORE PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED BALANCE SHEETS — (Continued)

reserves, computed by taking the average of such values at the end of each month during such period. “Operating Expenses” means all costs and expenses incurred by the Company, as determined under GAAP, which in any way are related to the Company’s operation of its business, including advisory fees, but excluding (i) the expenses of raising capital such as organizational and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and listing of the Company’s stock, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad debt reserves, (v) acquisition fees and acquisition expenses, (vi) real estate commissions on the sale of property, and other expenses connected with the acquisition and ownership of real estate interests, mortgage loans, or other property (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair, and improvement of property) and (vii) any subordinated participation in net sale proceeds, subordinated performance fee due upon termination or subordinated incentive fee due upon listing which may be paid by the Company.

Minority Interest in Consolidated Subsidiary

      Due to the Company’s control through its general partnership interest in the Operating Partnership and the limited rights of the limited partners, the Operating Partnership is consolidated with the Company and the limited partner interest is reflected as minority interest in the accompanying balance sheets.

Income Taxes

      For the year ending December 31, 2005, the Company expects to make an election to be taxed as a REIT, under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”) and expects to be taxed as such beginning with its taxable year ending December 31, 2005. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% of the REIT’s ordinary taxable income to stockholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income that it distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service granted the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company believes that it will be organized and operate in such a manner as to qualify for treatment as a REIT and intends to operate in the foreseeable future in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes.

Use of Estimates

      The preparation of the balance sheet in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the balance sheet and accompanying notes. Actual results could materially differ from those estimates.

3. Related Party Transactions

Advisory and Dealer Manager Agreements

      The Company anticipates executing the Advisory Agreement with the Advisor and a Dealer Manager Agreement with PCC which will entitle the Advisor and PCC to specified fees upon the provision of certain services with regard to the Offering and investment of funds in real estate projects, among other

F-8

CORNERSTONE CORE PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED BALANCE SHEETS — (Continued)

services, as well as reimbursement for organizational and offering costs incurred by the Advisor and PCC on behalf of the Company (as discussed in Note 2) and certain costs incurred by the Advisor in providing services to the Company. The terms and conditions of the Advisory Agreement and the Dealer Manager Agreement have not been finalized as of August 1, 2005.

      The Company expects to also incur various fees and reimburse expenses, such as property management, leasing and others, that will be paid to the Advisor or its affiliates. A discussion of these proposed fees and expense reimbursements follows:

Disposition Fee

      The Advisory Agreement is expected to provide that if the Advisor or its affiliate provides a substantial amount of the services (as determined by a majority of the directors of the Company, including a majority of the independent directors of the Company) in connection with the sale of one or more properties, the Company will pay the Advisor or such affiliate shall receive at closing a disposition fee equal to 3% of the sales price of such property or properties. This disposition fee may be paid in addition to real estate commissions paid to non-affiliates, provided that the total real estate commissions (including such disposition fee) paid to all persons by the company for each property shall not exceed an amount equal to the lesser of (i) 6% of the aggregate contract sales price of each property or (ii) the competitive real estate commission for each property. The Company will pay the disposition fees for a property at the time the property is sold.

Subordinated Participation in Net Sale Proceeds

      The Advisory Agreement is expected to require the Company to pay the Advisor a subordinated share of net sale proceeds equal to the percentage set forth below of the balance of net sale proceeds, if any, remaining after stockholders of the Company have received cumulative dividends and distributions equal to 100% of their Invested Capital, plus an amount equal to a cumulative, non-compounded per annum return on the Invested Capital, calculated on an aggregate weighted average daily basis. The subordinated share of net sale proceeds is expected to be (i) 5% of remaining net sale proceeds if stockholders have received cumulative dividends and distributions equal to 100% of the Invested Capital plus a 6% cumulative, non-compounded per annum return on the Invested Capital, (ii) 10% of remaining Net Sale Proceeds if Stockholders have received cumulative Dividends and distributions equal to 100% of the Invested Capital plus an 8% cumulative, non-compounded per annum return on the Invested Capital, or (iii) 15% of remaining Net Sale Proceeds if Stockholders have received cumulative dividends and distributions equal to 100% of the Invested Capital plus a 10% cumulative, non-compounded per annum return on the Invested Capital. Invested capital for investors in the Offering is expected to be $8.00 per share less any return of capital. Invested capital in any subsequent public offering is expected to be the maximum offering price per share less any return of capital. Invested capital for other investors such as persons who exchanged their Operating Partnership units for shares of the Company’s stock is expected to be the issue price per share less any return of capital. The subordinated participation in net sale proceeds is expected to be payable at the time the Company determines that the subordinated participation in net sale proceeds has been earned by the Advisor.

Subordinated Performance Fee Due Upon Termination

      The Advisory Agreement is expected to require the Company to pay the Advisor a subordinated performance fee due upon termination. This fee ranges from a low of 5% of the amount by which the sum of the net appraised value of the Company’s assets on the date the Advisory Agreement is terminated plus total dividends (other than stock dividends) paid prior to termination of the Advisory

F-9

CORNERSTONE CORE PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED BALANCE SHEETS — (Continued)

Agreement exceeds the amount of the Invested Capital plus cumulative, non-compounded annual returns 6% on Invested Capital to a high of 15% of the amount by which the sum of the net appraised value of the Company’s assets plus all prior dividends (other than stock dividends) exceeds the amount of Invested Capital plus cumulative, non-compounded annual returns of 10% or more on Invested Capital. The subordinated performance fee due upon termination is expected to be payable upon termination of the Advisory Agreement.

Subordinated Incentive Fee Due Upon Listing

      The Advisory Agreement is expected to require the Company to pay the Advisor a subordinated incentive fee due upon listing under certain circumstances if the Company’s common stock is listed on a national securities exchange or traded on the Nasdaq/ NMS. The Advisory Agreement is expected to require the Company to pay the Advisor a subordinated incentive fee due upon listing. This fee ranges from a low of 5% of the amount by which the Market Value of the Company’s common stock plus all prior dividends (other than stock dividends) exceeds the amount of invested capital plus cumulative, non-compounded annual returns of 6% on Invested Capital to a high of 15% of the amount by which the sum of the market value of our stock plus all prior dividends (other than stock dividends) exceeds the amount of invested capital plus cumulative, non-compounded annual returns of 10% of more on Invested Capital. The Market Value of the Company’s outstanding stock for purposes of calculating the incentive fee due upon listing is expected to be measured by taking the average closing price or average of bid and asked price, as the case may be, during the consecutive 30-day period commencing twelve (12) months following listing and ending eighteen (18) months following listing during which the average closing price or average of bid and asked price of the Stock is the highest. The incentive fee due upon listing is expected to be payable by the Company during the thirty (30) day period following eighteen (18) months after listing. The Company has the option to pay the subordinated incentive listing fee in the form of stock, cash, a promissory note or any combination thereof. The form of payment will be determined by the board of directors of the Company. In the event the Company pays the subordinated incentive listing fee to the Advisor as a result of the listing of the Company’s stock, the Company will not be required to pay the Advisor any further subordinated participation in net sale proceeds or subordinated fee upon termination of Advisory Agreement.

Employee and Director Incentive Stock Plan

      The Company has adopted an Employee and Director Incentive Stock Plan which would provide for the grant of awards to the Company’s directors and full-time employees, directors and full-time employees of the Advisor, entities and full-time employees of entities that provide services to the Company, and certain consultants to the Company and to the Advisor or to entities that provide services to the Company. Awards granted under the Plan may consist of nonqualified stock options, incentive stock options, restricted stock, share appreciation rights, and dividend equivalent rights. The term of the Plan is 10 years. The total number of shares of common stock reserved for issuance under the Plan is equal to 10% of the Company’s outstanding shares of stock at any time. No awards have been granted under the Employee and Director Incentive Stock Plan.

      The Company expects to issue non-qualified stock options to purchase 10,000 shares of common to each independent director pursuant to the Plan. In addition, the Company expects to issue options to purchase 5,000 shares of common stock to each independent director then in office on the date of each annual stockholders’ meeting. The Company may not grant options at any time when the issuance of the stock underlying the grant, when combined with those issuable upon exercise of outstanding options granted to the Company’s advisor, directors, officers or any of their affiliates, would exceed 10% of the Company’s outstanding shares.

F-10

CORNERSTONE CORE PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED BALANCE SHEETS — (Continued)

      The exercise price for the initial options for 10,000 shares is expected to be $8 per share. The exercise price for the subsequent options will be the fair market value of the shares on the date they are granted. Options will lapse on the first to occur of the tenth anniversary of the date we grant them, or (2) three months following the date the independent director ceases to be a director for any reason other than death or disability. Options may be exercised by payment of cash or through the delivery of shares of the Company’s common stock. Options are generally exercisable in the case of death or disability for a period of one year after death or the disabling event. No option issued may be exercised if such exercise would jeopardize the Company’s status as a REIT under the Internal Revenue Code. The independent directors may not sell, pledge, assign or transfer their options other than by will or the laws of descent or distribution.

4. Commitments and Contingencies

Distribution Reinvestment Plan

      The Company has proposed, but not yet adopted, a distribution reinvestment plan that will allow its stockholders to have dividends and other distributions otherwise distributable to them invested in additional shares of the Company’s common stock. The Company intends to register 11,000,000 shares of its common stock for sale pursuant to the distribution reinvestment plan. The purchase price per share is expected to be $7.20 per share. The Company may amend or terminate the distribution reinvestment plan for any reason at any time upon 10 days prior written notice to participants.

Proposed Stock Repurchase Program

      The Company expects to adopt a stock repurchase program that would enable the Company’s stockholders to sell their stock to the Company in limited circumstances. The Company could choose not to adopt the proposed stock repurchase program or to amend its provisions without stockholder approval. As long as the Company’s common stock is not listed on a national securities exchange, the Nasdaq National Market or other over-the-counter market, the Company’s stockholders who have held their stock for at least one year may be able to have all or any portion of their shares of stock redeemed by the Company. The Company may redeem the shares of stock presented for redemption for cash to the extent that the Company has sufficient funds available to fund such redemption. The amount that the Company may pay to redeem stock is expected to be the redemption price set forth in the following table which is based upon the number of years the stock is held:

Number Years Held	Redemption Price
Less than 1		No Redemption Allowed
1 or more but less than 2		90% of your purchase price
2 or more but less than 3		95% of your purchase price
Less than 3 in the event of death		100% of your purchase price
3 or more but less than 5		100% of your purchase price
5 or more		Estimated liquidation value

The estimated liquidation value for the repurchase of shares of stock held for 5 or more years is expected to be determined by the Advisor or another person selected for such purpose and will be approved by the Company’s board of directors. The stock repurchase price is subject to adjustment as determined from time to time by the Company’s board of directors. During this offering and each of the first five years following the closing of this offering, the Company is not expected to redeem more than the lesser of (i) the number of shares that could be redeemed using the proceeds from our distribution reinvestment plan or (ii) 5% of the number of shares outstanding at the end of the prior calendar year. Beginning five years after termination of the offering, the number of shares that the Company could redeem under the

F-11

CORNERSTONE CORE PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED BALANCE SHEETS — (Continued)

stock repurchase program is not expected to exceed 10% of the number of shares outstanding at the end of the prior year.

Special 10% Stock Dividend for Early Investors

      The Company plans to declare a one-time 10% stock dividend to be paid to the stockholders of record on the date that the Company raises $125,000,000 in this offering.

Exchange Rights

      It is expected that the limited partners of the Company’s operating partnership will have the right to cause the Company’s operating partnership to redeem their limited partnership units for cash equal to the value of an equivalent number of the Company’s shares, or, at the Company’s option, the Company may purchase their limited partnership units by issuing one share of its common stock for each limited partnership unit redeemed. These exchange rights may not be exercised under certain circumstances which could cause the Company to lose its REIT election. Furthermore, limited partners are expected to be able to exercise their exchange rights only after their limited partnership units have been outstanding for one year. Limited partners are expected to exchange their limited partnership units for the Company’s shares based on the conversion ratio that is expected to be set forth in the operating partnership agreement. The conversion ratio is expected to initially be one to one but is adjusted based on certain events including the Company declaration or payment of a dividend in stock (other than the special 10% stock dividend), the Company’s subdivision of its outstanding stock; or the Company’s combining its outstanding stock into a smaller number of shares.

F-12

PRIOR PERFORMANCE TABLES

      The prior performance tables that follow present information regarding private placement programs previously sponsored by affiliates of the advisor. The information presented in the tables represents unaudited historical experience of eight private real estate programs organized and managed by affiliates of the advisor. The prior private programs used substantial amounts of acquisition debt and had investment policies and objectives different than ours. This information should not be considered as indicative of the results to be obtained by any investment in our company. The information contained in these tables does not relate to any properties our company may acquire and the purchase of the units will not create any ownership interest in the programs included in these tables.

      Our company is designed for all cash property purchases to generate maximum cash flow from operations, with returns also anticipated from property value appreciation. Our company does not have significant tax shelter features. The prior private placement programs of the affiliates were oriented more towards capital growth with a modest near-term emphasis on cash flow.

      The tables described below contain information on the prior programs, but none of the information in the tables is covered by the report of an independent certified public accountant. The purpose of the Tables is to provide information from the prior performance of the affiliates of the advisor. For a narrative summary of the prior performance of the affiliates of the advisor, see “Prior Performance” in the text of the prospectus.

Table I — Experience in Raising and Investing Funds

      Table I summarizes information of the previous performance of the affiliates of our advisor in raising funds through programs the offering of which closed during the years 2002 through 2004. As the last offering sponsored by the affiliates of our advisor closed prior to January 1, 2002 and the current public offering sponsored by an affiliate of our advisor has not closed, there is no data available in this time period.

Table II — Compensation to Sponsor and Affiliates

      Table II summarizes the compensation paid to affiliates of our advisor during the years 2002 through 2004 for all programs, the offering of which closed during such period. As the last offering the affiliates of our advisor sponsored closed prior to January 1, 2002 and the current public offering sponsored by an affiliate of our advisor has not closed, there is no data available in this time period.

Table III — Operating Results from Prior Programs

      Table III summarizes the operating results for programs which were closed during the years 2000 through 2004. The basis for accounting is indicated on each program report. Generally, the information is presented on a Generally Accepted Accounting Principles (GAAP) basis. The information in Table III is unaudited.

Table IV — Results of Completed Programs

      Table IV summarizes the operating and disposition results of programs that have completed operations (no longer hold properties) during the years 2000 through 2004. The information in Table IV is unaudited.

Table V — Sale or Disposal of Property

      Table V identifies the sales or disposals of properties by program and details of cash received for sales or disposals which have closed during the years 2002 through 2004. The information in Table V is unaudited.

Table VI — General Information of Projects

      Table VI provides general information of the nature and location of the properties of prior programs that were acquired during the years 2002 through 2004.

P-1

TABLE I

EXPERIENCE IN RAISING AND INVESTING FUNDS

January 1, 2002 Through December 31, 2004

      No data available.

      Affiliates of our advisor did not sponsor any programs the offering of which closed from January 1, 2002 through December 31, 2004 and the current public offering sponsored by an affiliate of our advisor has not closed, therefore no prior experience information is available in this time period.

P-2

TABLE II

COMPENSATION TO SPONSOR

January 1, 2002 Through December 31, 2004

      No data available.

      Affiliates of our advisor did not sponsor any programs the offering of which closed from January 1, 2002 through December 31, 2004 and the current public offering sponsored by an affiliate of our advisor had not closed, therefore no compensation as a sponsor from prior programs was received in this period.

P-3

TABLE III

WHITE STAR PARTNERS — PHASE I

OPERATING RESULTS OF PRIOR PROGRAMS (Unaudited)

				2000			2001			2002			2003
GAAP BASED INFORMATION
Gross Revenues					911,649			282,198			136,924			14,131
Profit on sale of properties					784,374			1,429,302			806,227	(1)		(27,632	)(1)
Less: Operating expenses					397,807			286,299			185,996			48,081
Interest expense					407,679			100,353			0			0
Depreciation & amortization					84,344			187,151			0			0
Net Income-GAAP Basis					806,193			1,137,697			757,155			(61,582	)
NON-GAAP BASED INFORMATION
Taxable Income
	- from operations				40,980			(276,723	)		(68,973	)		(51,508	)
	- from gain on sale (ordinary income)				776,556	(2)		1,226,525	(2)		180,510			0
	- from gain on sale (capital gain)							202,777	(2)		628,940			30,856
Cash generated from operations					33,861			(105,289	)		(68,807	)		(49,431	)
Cash generated from sales					2,136,975			6,321,991			3,034,177			(30,856	)
Cash generated from refinancing					0			0			0			0
Cash generated from operations, sales and refinancing					2,170,836			6,216,702			2,965,370			(80,287	)
Less: Cash distributions to investors
	- from operating cash flow				0			0			0			(128,672	)
	- from sales and refinancing				750,000			1,868,975			809,450			(30,856	)
	- from return of capital				0			981,025			2,240,550			303,028
					750,000			2,850,000			3,050,000			143,500
Cash generated (deficiency) after cash distributions					1,420,836			3,366,702			(84,630	)		(223,787	)
	Special items:
	- Partners’ capital contributions				0			0			0			0
	- Borrowing secured by property				0			0			0			0
	- Escrow deposits on future sales				25,000			(25,000	)		(20,000	)		20,000
	- Capitalized loan fees & organization cost				(23,614	)		0			0			0
	- Property acquisitions and improvements				(46,954	)		(2,655	)		0			0
	- Decrease in borrowings secured by property				(1,589,441	)		(3,481,823	)		0			0
Cash generated (deficiency) after cash distributions and special items					(214,173	)		(142,776	)		(104,630	)		(203,787	)
Tax and Distribution Data per $1000 Invested
Federal Income Tax Results:
		Ordinary income (loss)
			- from operations		11.6			(78.5	)		(19.6	)		(14.6	)
			- from 1231 gain		220.3	(2)		348.0	(2)		51.2			0.0
		Capital gain (loss)			0.0			57.5	(2)		178.4			(8.8	)
Cash Distributions to Investors
		Source (on GAAP basis)
			- Investment income		212.8			530.3			229.7			(45.3	)
			- Return of capital		0.0			278.3			635.7			86.0
		Source (on cash basis)
			- Operations		0.0			0.0			0.0			(36.5	)
			- Refinancing		0.0			0.0			0.0			0.0
			- Sales		212.8			808.6			865.3			77.2
Amount remaining invested at the end of the period (expressed as a percentage of the amount originally invested in the property)					100%			72.17%			36.43%			0.00%

      Prior performance is not indicative of future results.

P-4

(1)

Final building sold in December 2002 with additional costs attributable to escrow holdbacks resolved in 2003.

(2)

Due to the holding period of the asset, the entire gain was recognized as ordinary income on the tax return in 1999; in 2000 the partnership reported the sale of units as inventory held for sale and reported the gain as ordinary. In 2001, there were sales of units held as inventory and reported as ordinary income and sales of units held as investment and reported as 1231 gain. In 2002, there was a sale of a unit held as inventory and reported as ordinary income and three sales of units held as inventory and reported as 1231 gain.

P-5

TABLE IV

RESULTS OF COMPLETED PROGRAMS (Unaudited)

For the Period January 1, 2000 — December 31, 2004

							Carson
							Industrial
				White Star			Partners						Tamarack Brea
				Phase I			Phase II			The Park			Park
	Dollar amount raised				3,524,603			2,223,323			544,635			925,000
	Number of properties purchased				Thirteen			Seven			Eighteen			One
	Date of closing of offering				2/4/1999			4/14/1997			11/22/1993			6/4/1993
	Date of first sale of property				9/20/1999			7/21/2000			12/30/1994			11/17/1995
	Date of final sale of property				12/20/2002			4/26/2002			2/8/2001			12/13/2000
Tax and distribution data per $1,000 investment
	Federal income tax results:
		Ordinary income (loss):
			From operations		(36.9	)(4)		(128.1	)		(3,315.2	)		132.8
			From recapture or holding period		765.7	(4)		0.0			0.0			0.0
		Gross capital gain			227.2	(4)		1,796.4			6,350.8			1,150.3
		Deferred gain:			0.0			0.0			0.0			0.0
	Cash distributions to investors:
		Source (on GAAP basis)
			Investment income		956.3	(4)		1,869.8			3,035.5			n/a	(2)
			Return of capital		1,000.0	(4)		1,000.0			843.8			n/a	(2)
		Source (cash basis):
			Sales		1,992.9	(1)		1,700.9	(1)		3,879.3			2,150.3
			Refinancing		0.0			0.0			0.0			0.0
			Operations		(36.5	)(4)		159.9			0.0			132.6
			Other		0.0			0.0			0.0			0.0

(1)	This program was included with other programs that were reported by a single partnership entity. All of the programs were financed by an umbrella loan. Upon disposition of properties the lender may have required a pay down on the umbrella loan in an amount greater than the debt that was allocated to it.
(2)	The program’s books and records were maintained on a cash basis and therefore GAAP information is not available.
(3)	All capital was distributed net of equity placement fees.
(4)	Sale of final building occurred in 2002. However, the partnership wound down in 2003, and additional expenses were incurred in 2003. Final cash distribution also occurred in 2003.

      Prior performance is not indicative of future results.

P-6

TABLE IV

RESULTS OF COMPLETED PROGRAMS (Unaudited)

For the Period January 1, 2000 - December 31, 2004

				Van Buren			Torrance
				Business			Amapola
				Park			Business Park
				(Unaudited)
	Dollar amount raised				1,572,781			1,601,046
	Number of properties purchased				Twelve			One
	Date of closing of offering				5/31/1995			12/13/1995
	Date of first sale of property				7/7/1995			1/7/2000
	Date of final sale of property				2/5/2000			1/7/2000
Tax and distribution data per $1,000 investment
	Federal income tax results:
		Ordinary income (loss):
			From operations		(82.8	)		54.9
			From recapture or holding period		0.0			0.0
		Gross capital gain			1,241.1			1,372.4
		Deferred gain:			0.0			0.0
	Cash distributions to investors:
		Source (on GAAP basis)
			Investment income		1,158.2			1,427.3
			Return of capital		915.9	(1)		882.6	(1)
		Source (cash basis):
			Sales		2,074.1			1,319.8
			Refinancing		0.0			935.2
			Operations		0.0			54.9
			Other		0.0			0.0
Receivable on net purchase money financing					0.0			0.0

(1)  All capital was distributed net of equity placement fees.

      Prior performance is not indicative of future results.

P-7

TABLE V

SALES OR DISPOSALS OF PROPERTIES (Unaudited)

January 1, 2002 Through December 31, 2004

		Date		Date of												Cost of Property Including Closing and Soft Costs
Property		Acquired		Sale		Selling Price Net of Closing Costs and GAAP Adjustments
																				Total				Excess (Deficit)
										Purchase		Adjustment								Acquisition				of Property
						Cash				Money		Resulting								Cost, Capital				Operational
						Received Net		Mortgage		Mortgage		from				Original				Improvements				Cash Receipts
						of Closing		Balance at		Taken Back		Application				Mortgage				Closing &				Over Cash
						Costs		Time of Sale		by Program		of GAAP		Total(1)		Financing		FtNt		Soft Costs(2)		Total		Expenditures
White Star I
	Bldg 14A		2/5/1999		3/20/2002		762,662		0		0		0		762,662		422,204		(3)(4)		165,887		588,091		(5)
	Bldg 10		2/5/1999		7/10/2002		954,597		0		0		0		954,597		537,358		(3)(4)		179,767		717,125		(5)
	Bldg 16		2/5/1999		7/30/2002		731,285		0		0		0		731,285		403,072		(3)(4)		131,960		535,032		(5)
	Bldg 17		2/5/1999		12/20/2002		603,633		0		0		0		603,633		317,505		(3)(4)		103,915		421,420		(5)
							3,052,177		0		0		0		3,052,177		1,680,139				581,529		2,261,668
Carson Phase II
	Bldg 5		8/15/1997		2/15/2002		785,287		343,794		0		0		1,129,081		506,585		(3)(4)		245,050		751,635		(5)
	Bldg 11		8/15/1997		3/8/2002		610,308		0		0		0		610,308		238,794		(3)(4)		127,445		366,239		(5)
	Bldg 8		8/15/1997		4/26/2002		1,364,999		0		0		0		1,364,999		612,573		(3)(4)		299,316		911,889		(5)
							2,760,594		343,794		0		0		3,104,388		1,357,952				671,811		2,029,763

(1)	All taxable gain was allocated as capital gain, except that $180,510 was allocated as ordinary gain with respect to White Star I, Building 10. No sales were reported for tax purposes on the installment basis.
(2)	Total acquisition cost, capital improvements, closing and soft costs does not include a pro rata share of original offering costs.
(3)	Original mortgage financing allocated to unit based on square footage percentage of total project. This property was acquired using permanent debt financing and in that respect the investment objectives of this prior program were dissimilar from ours.
(4)	Debt paid down on blanket loan at time of sale that included multiple units in the same program or multiple programs. The lender determined debt paydown at each property sale and often required a paydown in a larger percentage of total debt than allocated.
(5)	The sponsor did not record income and expenditures on a unit by unit basis and excess cash receipts over expenditures by unit is not available.

      Prior performance is not indicative of future results.

P-8

TABLE V

RESULTS OF COMPLETED PROGRAMS FOR THE PERIOD

January 1, 1999 Through December 31, 2004

						Average		Total
						Holding		Acquisition								Annualized
		Date		Date of		Period		and Improvement		Net Sales		Profit from		Sales		Sales Profit
	Project Name	Acquired		Final Sale		(Years)		Cost ($)(1)		Price ($)(2)		Sales ($)		Profit (%)(3)		(%)(4)
1	White Star I		2/5/1999		12/20/2002		2.5		11,943,610		15,250,855		3,307,245		27.7%		11.08%
2	White Star Phase II		2/5/1999		9/17/1999		0.6		4,462,458		4,570,830		108,372		2.4%		3.96%
3	Carson Phase II		8/15/1997		4/26/2002		3.9		6,474,508		10,093,703		3,619,195		56.5%		14.90%
4	The Park		11/22/1993		2/8/2001		6.5		3,204,187		4,797,947		1,593,760		50.2%		7.84%
5	Tamarack		4/4/1993		12/13/2000		6.7		1,240,796		1,649,848		409,052		34.8%		5.21%
6	Van Buren		5/31/1995		2/4/2000		4.1		1,854,165		2,999,903		1,145,738		61.7%		15.36%
7	Torrance Amapola Partners		12/15/1995		1/7/2000		4.1		4,795,045		6,597,929		1,802,884		37.6%		9.25%
8	Walnut II		7/2/1992		4/9/1999		6.8		530,248		697,893		167,645		31.6%		4.67%
9	Westlake II		12/22/1993		10/13/1999		5.7		1,380,423		2,260,409		879,986		63.8%		11.15%
10	Baldwin Business Park		12/5/1996		8/30/1999		2.7		6,945,313		8,420,579		1,475,266		21.2%		7.77%
	Totals						4.4		42,830,753		57,339,896		14,509,143		33.9%		7.70%

Notes:

(1)	Total Acquisition and Improvement Costs ($) includes total acquisition costs, capital improvements, closing and soft costs, but does not include carrying costs of mortgage financing on the properties.
(2)	The Net Sales Price ($) is the sales price of the properties less all escrow closing costs, including sales commissions, title insurance and escrow fees.
(3)	Sales Profit (%) is Profit from Sales ($) divided by the Total Acquisition and Improvement Cost ($).
(4)	Annualized Sales Profit (%) represents gains on sales of properties, which is in addition to cash flow from rental operations. The Annualized Sales Profit (%) is the Sales Profit (%) divided by the Average Holding Period (Years).

      Prior performance is not indicative of future results.

P-9

TABLE VI

ACQUISITIONS OF PROPERTIES BY PROGRAMS

For the Period January 1, 2002 Through December 31, 2004

Cornerstone Realty Fund, LLC

Name	Normandie Business Center	Sky Harbor Business Park	Arrow Business Park
Location	Torrance, CA	Northbrook, IL	Irwindale, CA
Property type	Multi-tenant industrial park	Multi-tenant industrial park	Multi-tenant industrial park
Gross leasable square feet	48,711	41,422	69,592
Date of purchase	27-Sep-02	27-Dec-02	10-Dec-03
Mortgage financing at date of purchase	None	None	None
Cash down payment	$3,825,000	$2,525,000	$5,670,000
Contract purchase price	$3,825,000	$2,525,000	$5,670,000
Acquisition fee	None	None	None
Other cash expenditures expensed	None	None	None
Other cash expenditures capitalized	$76,696	$28,996	$240,579
Total acquisition cost	$3,901,696	$2,553,996	$5,910,579

      Prior performance is not indicative of future results.

P-10

APPENDIX A

SUBSCRIPTION AGREEMENT (SAMPLE)

WITH INSTRUCTIONS

Cornerstone Core Properties REIT, Inc.

4590 MacArthur Blvd. Suite 610

Newport Beach, CA 92660

Ladies and Gentlemen:

      The undersigned, by signing and delivering a copy of the attached Subscription Agreement Signature Page, hereby tenders this subscription and applies for the purchase of the number of shares of common stock (“Shares”) of Cornerstone Core Properties REIT, Inc., a Maryland corporation (the “Company”), set forth on such Subscription Agreement Signature Page. Payment for the Shares is hereby made by check payable during the escrow impound period to “USB Escrow No.           ” and following the escrow impound period to “Cornerstone Core Properties REIT, Inc.”

      I hereby acknowledge receipt of the Prospectus of the Company dated                     , 2005 (the “Prospectus”). I agree that if this subscription is accepted, it will be held, together with the accompanying payment, on the terms described in the Prospectus. I agree that subscriptions may be rejected in whole or in part by the Company in its sole and absolute discretion. SALE OF SHARES PURSUANT TO THIS SUBSCRIPTION AGREEMENT WILL NOT BE EFFECTIVE UNTIL AT LEAST FIVE BUSINESS DAYS AFTER THE DATE AN INVESTOR HAS RECEIVED A FINAL PROSPECTUS AND UNTIL THE INVESTOR HAS RECEIVED A CONFIRMATION OF PURCHASE.

Prospective investors should be aware that:

      (a) The assignability and transferability of the Shares is restricted and will be governed by the Company’s Articles of Incorporation, as amended, and Bylaws and all applicable laws as described in the Prospectus.

      (b) Prospective investors should not invest in Shares unless they have an adequate means of providing for their current needs and personal contingencies and have no need for liquidity in this investment.

      (c) There is no public market for the Shares and, accordingly, it may not be possible to readily liquidate an investment in the Company.

SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY — CONDITIONS RESTRICTING TRANSFER OF SHARES. The exceptions for secondary trading available under Corporations Code §25104(h) have been withheld, but there may be other exceptions to cover private sales of the Shares by the bona fide owner for his own account without advertising and without being effected by or through a broker dealer in a public offering.

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REGISTRATION OF SHARES

      The following requirements have been established for the various types of ownership in which Shares may be held and registered. Subscription Agreements must be executed and supporting material must be provided in accordance with these requirements.

      1. INDIVIDUAL OWNER: One signature required.

      2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: Each joint tenant must sign.

      3. TENANTS IN COMMON: Each tenant in common must sign.

      4. COMMUNITY PROPERTY: Only one investor must sign.

      5. PENSION OR PROFIT SHARING PLANS: The trustee must sign the Signature Page.

      6. TRUST: The trustee must sign. Provide the name of the trust, the name of the trustee and the name of the beneficiary.

      7. CORPORATION: An authorized officer must sign. The Subscription Agreement must be accompanied by a certified copy of the resolution of the Board of Directors designating the executing officer as the person authorized to sign on behalf of the corporation and a certified copy of the Board’s resolution authorizing the investment.

      8. PARTNERSHIP: Identify whether the entity is a general or limited partnership. Each general partner must be identified and must sign the Subscription Agreement Signature Page. In the case of an investment by a general partnership, all partners must sign.

      9. LIMITED LIABILITY COMPANY: Identify whether the entity is manager managed or member managed. Each manager must be identifies and must sign the Subscription Agreement Signature Page.

      10. IRAS, IRA ROLLOVERS AND KEOGHS: The officer (or other authorized signer) of the bank, trust company, or other fiduciary of the account must sign. The address of the bank, trust company or other fiduciary must be provided in order to receive checks and other pertinent information regarding the investment.

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INSTRUCTIONS TO SIGNATURE PAGE

      Please refer to the following instructions in completing the Signature Page contained below. Failure to follow these instructions may result in the rejection of your subscription.

      1. INVESTMENT. A minimum investment of $2,000 (250 Shares) [$1,000 (125 Shares) for IRAs, Keoghs and Tax Qualified Plans] is required, except for certain states, which require a higher minimum investment. A CHECK FOR THE FULL PURCHASE PRICE OF THE SHARES SUBSCRIBED FOR SHOULD BE MADE PAYABLE DURING THE ESCROW IMPOUND PERIOD TO THE ORDER OF “USB ESCROW #                     ” AND FOLLOWING THE ESCROW IMPOUND PERIOD TO THE ORDER OF “CORNERSTONE CORE PROPERTIES REIT, INC.” The Company will not accept cash, starter or counter checks, money orders or travelers checks due to anti-money laundering considerations. Please indicate the state in which the sale was made.

      2. ADDITIONAL INVESTMENTS. Please check the box if you intend to make additional investments.

      3. TYPE OF OWNERSHIP. Please check the appropriate box to indicate the type of entity or type of individuals subscribing.

      4. REGISTRATION NAME AND ADDRESS. Please enter the exact name in which the Shares are to be held. For joint tenants with right of survivorship or tenants in common, include the names of both investors. In the case of partnerships or corporations, include the name of an individual to whom correspondence will be addressed. Trusts should include the name of the trustee. All investors must complete the space provided for taxpayer identification number or social security number. By signing in Section 4, the investor is certifying that the taxpayer or social security number is correct. Enter the mailing address and telephone numbers of the registered owner of this investment. In the case of a Qualified Plan or trust, this will be the address of the trustee. Indicate the birth date and occupation of the registered owner unless the registered owner is a partnership, corporation or trust.

      5. INVESTOR NAME AND ADDRESS. Complete this Section only if the investor’s name and address is different from the registration name and address provided in Section 4. If the Shares are registered in the name of a trust, enter the name, address, telephone number, social security number, birth date and occupation of the beneficial owner of the trust.

      6. SUBSCRIBER SIGNATURES. Please separately initial each representation made by the investor where indicated. Except in the case of fiduciary accounts, the investor may not grant any person a power of attorney to make such representations on his or her behalf. Each investor must sign and date this Section. If title is to be held jointly, all parties must sign. If the registered owner is a partnership, corporation or trust, a general partner, officer or trustee of the entity must sign. PLEASE NOTE THAT THESE SIGNATURES ARE NOT REQUIRED TO BE NOTARIZED.

      6. SUITABILITY. Only persons meeting the standards set forth under the Section of the Prospectus entitled “Suitability Standards” may purchase Shares. Please complete this Section so that the Company and your Broker-Dealer can asses whether your subscription is suitable given your financial condition and investment objective. The Company and the Broker-Dealer named on the Subscription Agreement Page in writing if at any time he/she fails to meet the applicable suitability standards or he/she is unable to make any other representations and warranties as set forth in the Prospectus or Subscription Agreement.

      7. DISTRIBUTION REINVESTMENT PLAN. By electing the Distribution Reinvestment Plan, the investor elects to reinvest 100% of cash distributions otherwise payable to such investor in Shares of the Company. The investor agrees to notify the Company and the Broker-Dealer named on the Subscription Agreement Signature Page in writing if at any time he fails to meet the applicable suitability standards or he is unable to make any other representations and warranties as set forth in the Prospectus or Subscription Agreement. If cash distributions are to be sent to an address other than that provided in Section 4 (i.e., a bank, brokerage firm or savings and loan, etc.), please provide the name, account number and address.

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      8. BROKER-DEALER OR INDEPENDENT INVESTMENT ADVISER. Who must sign this Section. If the investment is made through an investment adviser unaffiliated with a broker-dealer (“Independent Investment Adviser”), this Section 8 must be signed by an authorized representative of the Investment Adviser. Otherwise, this section must be signed by an authorized representative of the participating Broker-Dealer.

      Required Representations. By signing this section, the Broker-Dealer or Independent Investment Adviser represents that it has made every reasonable effort to determine that the purchase of Shares in this offering is a suitable and appropriate investment for each investor based on information provided by the investor regarding the investor’s financial situation and investment objectives. In making this determination, the Broker-Dealer or Independent Investment Adviser ascertained that the prospective stockholder:

•  meets the minimum income and net worth standards set forth in the Prospectus at “Suitability Standards”;

•  can reasonably benefit from an investment in the stock based on the prospective stockholder’s overall investment objectives and portfolio structure;

•  is able to bear the economic risk of the investment based on the prospective stockholder’s overall financial situation; and

•  has apparent understanding of:

•  the fundamental risks of the investment;

•  the risk that the stockholder may lose the entire investment;

•  the lack of liquidity of the stock;

•  the restrictions on transferability of the stock;

•  the background and qualifications of our advisor and its affiliates; and

•  the tax consequences of the investment.

      Relevant information for this purpose will include at least the age, investment objectives, investment experience, income, net worth, financial situation and other investments of the prospective stockholder, as well as any other pertinent factors. The Broker-Dealer or Independent Investment Adviser agrees to maintain records of the information used to determine that an investment in stock is suitable and appropriate for the stockholder for a period of six years.

      In addition, the registered representative of a Broker-Dealer represents that he or she and the Broker-Dealer are duly licensed to offer the stock in the state where the investment was made and in the state of the investor’s address set forth in Section 1 of the Subscription Agreement Signature Page. An Independent Investment Adviser represents that such adviser is either registered under the Investment Advisers Act of 1940 or exempt from registration.

      Regular Commission or Deferred Commission Option. Broker-Dealers should select either the regular commission structure or the deferred commission option. “Full commission” may not be selected if the investment is made through an Independent Investment Advisor compensated on a fee-for-service basis in connection with the sale or if the purchase is for a Broker-Dealer, its retirement plan or its representative (or the retirement plan or family members of its representative).

      9. SIGNATURE PAGE MUST BE SIGNED BY AN AUTHORIZED REPRESENTATIVE. The Subscription Agreement Signature Page, which has been delivered with the Prospectus, together with a check for the full purchase price, should be delivered or mailed to your Broker-Dealer. Only original, completed copies of Subscription Agreements may be accepted. Photocopied or otherwise duplicated Subscription Agreements cannot be accepted by the Company.

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      IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS SUBSCRIPTION AGREEMENT SIGNATURE PAGE, PLEASE CALL (949) 852-1007

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Subscription Agreement Signature Page

(See the Prospectus for Subscription Agreement with Instructions)

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1. INVESTMENT

# of Shares Total $ Invested (# Shares × $8 = $ Invested) Minimum Purchase: $2,000 ($1,000 for IRAs, Keoghs or Qualified Plans) State

o Initial Investment o Additional Investment (minimum $100)

o Check this box to elect the Deferred Commission Option, as described in the Prospectus. (Broker-Dealer listed below must agree to this election.)

o Check this box if you are purchasing Shares from a registered investment advisor in a fee only account. (Advisor listed below must agree to this election.)

2. ADDITIONAL INVESTMENTS
o	Please check the box if you intend to make additional investments in the Company.
	If additional investments are made, please include social security number or other tax identification number on your check. All additional investments must be made in increments of $100. By checking this box, you agree to notify the Company in writing if at any time you fail to meet the suitability standards or are unable to make the representations in Section 6.

3. TYPE OF OWNERSHIP

See “Registration of Shares” in the Subscription Agreement for a description of ownership types.

o	Individual	o	Qualified Pension Plan	o	Trust/Trust Type
					(Specify, i.e. Family, Living, Revocable, Irrevocable)
o	Joint Tenant with Right of Survivorship	o	Qualified Profit Sharing Plan
				o	Limited Liability Company
o	Tenants in Common	o	Corporation		(Specify, i.e. Manager or Member Managed)
o	IRA	o	Community Property	o	Partnership/Type
o	Keogh	o	Transfer on Death (Can be chosen in conjunction with other ownership types. Not allowed by all states.)

4. REGISTRATION NAME AND ADDRESS

Please print name(s) in which shares are to be registered. Include trust name if applicable
Name (include Mr., Mrs., Dr. etc.):			Social Security Number
Street Address			Tax I.D. Number
City	State	Zip	Occupation

Home Phone Number Business Phone Number Email Address Date of Birth

5. INVESTOR NAME AND ADDRESS (COMPLETE ONLY IF DIFFERENT FROM REGISTRATION NAME AND ADDRESS)

Name (include Mr., Mrs., Dr. etc.):			Social Security Number
Street Address			Tax I.D. Number
City	State	Zip	Occupation

Home Phone Number Business Phone Number Email Address Date of Birth

6. SUITABILITY

Occupation	Annual Income	Net Worth
Investment Objectives
Nature of Other Investments or Securities Holdings

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7. CONSENT OF ELECTRONIC DELIVERY OF DOCUMENTS

(a) I acknowledge that access to both Internet e-mail and the World Wide Web is required in order to access documents electronically. I may receive by e-mail notification of the availability of a document in electronic format. The notification e-mail may or may not contain the actual document. If not, the notification e-mail will contain a web address (or hyperlink) where the document can be found. By entering this address into my web browser, I can view, download and print the document from my computer.

(b) I acknowledge documents distributed electronically may be distributed in Adobe’s Portable Document Format (PDF). The Adobe Acrobat Reader software is required to view documents in PDF format. The Reader software is available free of charge from Adobe’s web site at www.adobe.com. The Reader software must be correctly installed on my system before I will be able to view documents in PDF format.

(c) I acknowledge that I may receive at no cost from the deliverer(s) a paper copy of any documents delivered electronically if I contact the deliverer by regular mail (4590 MacArthur Boulevard, Suite 610, Newport Beach, CA 92660).

(d) For the above named issuer the documents will be maintained for a minimum of 6 months (unless the document earlier superseded by subsequent document) and a maximum of 12 months from the date of posting to the web site. Specific cancellation dates will be noted on the documents themselves.

(e) I understand that I will be provided with a paper copy of any document intended to be delivered electronically, if we are made aware that electronic delivery has failed.

(f) I understand that my consent may be revoked or changed, including any change in electronic mail address to which documents are delivered at any time by notifying the deliverer of such revised or revoked consent by regular mail (4590 MacArthur Boulevard, Suite 610, Newport Beach, CA 92660).

(g) I understand that I am not required to consent to electronic delivery.

Initials Initials I have read and understand this “Consent to Electronic Delivery of Documents” and consent to the electronic delivery of the documents that the deliverer elects to deliver to me electronically, all in accordance with my instructions above or otherwise in writing. This includes documents filed with the Securities and Exchange Commission including but not limited to prospectus supplements, 10Ks, 10Qs, 8Ks, and proxy statements as well as press releases, regular distribution reports, 1099s and other documents provided to the company’s stockholders generally.

8. SUBSCRIBER SIGNATURES

Please separately initial each of the representations below. In the case of joint investors, each investor must initial. Except in the case of fiduciary accounts, you may not grant any person a power of attorney to make such representations on your behalf. In order to induce the Company to accept this subscription, I hereby represent and warrant to you as follows:

Initials	Initials	I have received the Prospectus at least 5 days prior to the date I am signing this subscription agreement.
Initials	Initials	I have (i) a net worth (exclusive of home, home furnishings and automobiles) of $150,000 or more; or (ii) a net worth (as described above) of at least $45,000 and had during the last year or estimate that I will have during the current tax year a minimum of $45,000 annual gross income, or if my primary residence is in Arizona, California, Iowa, Kansas, Maine, Massachusetts, Michigan, New Mexico, Ohio, Pennsylvania or Tennessee that I meet the higher suitability requirements imposed by my state of primary residence as set forth in the Prospectus under “Suitability Standards” and specifically acknowledged by me on the appendix to this Subscription Agreement.
Initials	Initials	If I am a California resident or if the Person to whom I subsequently propose to assign or transfer any Shares is a California resident, I may not consummate a sale or transfer of my Shares, or any interest therein, or receive any consideration therefore, without the prior written consent of the Commissioner of the Department of Corporations of the State of California, except as permitted in the Commissioner’s Rules, and I understand that my Shares, or any document evidencing my Shares, will bear a legend reflecting the substance of the foregoing understanding.
Initials	Initials	I am purchasing the Shares for my own account and acknowledge that the investment is not liquid.
Initials	Initials	I am a citizen of the United States.

I declare that the information supplied above is true and correct and may be relied upon by the Company in connection with my investment in the Company. Under penalties of perjury, by signing this Subscription Agreement Signature Page, I hereby certify that (a) I have provided my correct Taxpayer Identification Number, and (b) I am not subject to back-up withholding as a result of a failure to report all interest and dividends, or the Internal Revenue Service has notified me that I am no longer subject to back-up withholding.

Signature of Investor or Trustee
(Must be signed by Trustee(s) if IRA, KEOGH or Qualified Plan) Signature of Joint Owner, if applicable Date

9. DISTRIBUTIONS

o Check this box to participate in the Distribution Reinvestment Plan.

o Check this box and complete below ONLY to direct distributions to a party other than registered owner.

Name (include Mr., Mrs., Dr. etc.): Street Address

Account Number City State Zip

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10. BROKER-DEALER (TO BE COMPLETED BY THE REGISTERED REPRESENTATIVE)

The Broker-Dealer or authorized representative must sign below to complete the order. Broker-Dealer or authorized representative warrants that it is a duly licensed Broker-Dealer and may lawfully offer shares in the state designated as the investor’s address or the state in which the sale was made, if different. The Broker-Dealer or authorized representative warrants that he has reasonable grounds to believe this investment is suitable as defined in Section 3(b) of the Rules of Fair Practice of the NASD Manual and that he has informed the subscriber of all aspects of liquidity and marketability of this investment as required by Section 4 of such Rules of Fair Practice.

Broker/Dealer Name Broker Dealer Street Address

Broker/Dealer Phone Number City State Zip

Registered Rep Name Rep Street Address

Rep Phone Number City State Zip

Rep Email Address
o Check this box to agree Deferred Commission Option or Advisor Fee only account.	o Check this box to agree to a regular commission structure.

Registered Representative Signature Broker/Dealer Signature, if Required Date

SUITABILITY STANDARDS

Initials	Initials	For Arizona Residents I meet one of the following suitability standards: (1) a net worth of at least $400,000; or (2) gross annual income of at least $200,000 and a net worth of at least $200,000.
Initials	Initials	For California, Iowa, Michigan, New Mexico and Tennessee Residents I meet one of the following suitability standards: (1) a net worth of at least $225,000; or (2) gross annual income of at least $60,000 and a net worth of at least $60,000.
Initials	Initials	For Kansas Residents I understand that it is recommended that Kansas investors should invest no more than 10% of their liquid net worth in stock of Issuer and securities of other real estate investment trusts.
Initials	Initials	For Maine Residents I meet one of the following suitability standards: (1) a net worth of at least $200,000 (not including home, furnishings and personal automobiles); or (2) gross annual income of at least $50,000 and a net worth of at least $50,000 (not including home, furnishings, and personal automobiles).
Initials	Initials	For Massachusetts and Ohio residents My investment does not exceed 10% of my net worth (not including home, home furnishings and automobiles) and I meet one of the following suitability standards: (1) a net worth of at least $250,000 (not including home, furnishings, and automobiles); or (2) gross annual income of $70,000 and a net worth of at least $70,000 (not including home, furnishings, and automobiles).
Initials	Initials	For Pennsylvania Residents I meet both of the following suitability standards: (1) I am not investing more than 10% of my net worth, excluding home, furnishings and automobiles; and (2) I possess a net worth of $1 million or more.

SUBMISSION INSTRUCTIONS	CONTACT INFORMATION
Mail completed subscription agreement with all signatures and check made payable to: USB Escrow #: c/o Cornerstone Core Properties REIT, Inc. 4590 MacArthur Blvd. Suite 610 Newport Beach, CA 92660	DTC Contact Information: (949) 852-1007 Phone (949) 852-XXXX Fax info@CornerstoneRealEstateFunds.com

Wiring Instructions:

U.S. Bank, N.A.

ABA:

Cornerstone Core Properties REIT, Inc.

#:

Ref: Escrow Account

Attn:

© 2005 Cornerstone Real Estate Funds, Securities Offered Through Pacific Cornerstone Capital, Inc. Member NASD and SPIC.

C-CB-01

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APPENDIX B

DISTRIBUTION REINVESTMENT PLAN

      Cornerstone Core Properties REIT, Inc., a Maryland corporation (the “Company”), has adopted a distribution reinvestment plan (the “DRIP”), the terms and conditions of which are set forth below. Capitalized terms shall have the same meaning as set forth in the Company’s Charter unless otherwise defined herein.

      1.     Distribution Reinvestment. As agent for the stockholders (“Stockholders”) of the Company who (i) purchase shares of the Company’s common stock (the “Shares”) pursuant to the Company’s Initial Public Offering, or (ii) purchase Shares pursuant to any future offering of the Company (a “Future Offering”), and who elect to participate in the DRIP, the Company will apply all distributions declared and paid in respect of the Shares held by each participating Stockholder (the “Distributions”), including Distributions paid with respect to any full or fractional Shares acquired under the DRIP, to the purchase of the Shares for such participating Stockholders directly, if permitted under state securities laws and, if not, through the Dealer Manager or Soliciting Dealers registered in the participating Stockholder’s state of residence.

      Additionally, as agent for the holders of limited partnership interests (the “OP Interests”) of Cornerstone Operating Partnership, L.P. (the “Partnership”) who (i) acquire such interest in the Partnership pursuant to the Partnership’s private placement of its limited partnership units (the “Private Placement”), or (ii) pursuant to any other transactions of the Partnership, and who elect to participate in the DRIP (together with the participating Stockholders, the “Participants”), the Partnership will apply all distributions declared and paid in respect of the OP Interests held by each Participant (also referred to as “Distributions” for purposes of this DRIP), including Distributions paid with respect to any full or fractional OP Interests acquired, to the purchase of the Shares for such Participant directly, if permitted under state securities laws and, if not, through the Dealer Manager or Soliciting Dealers registered in the Participant’s state of residence.

      2.     Effective Date. The DRIP will become effective on the effective date of the Company’s initial public offering. Any amendment to the DRIP shall be effective as provided in Section 9.

      3.     Procedure for Participation. Any Stockholder or holder of OP Interests, who purchases Shares pursuant to the Initial Public Offering or any Future Offering, or OP Interests pursuant to the Private Placement or other Partnership transaction and who has received a prospectus, as contained in the Company’s registration statement filed with the Securities and Exchange Commission (the “SEC”), may elect to become a Participant by completing and executing the Subscription Agreement, an enrollment form or any other appropriate authorization form as may be available from the Company, the Partnership, the Dealer Manager or Soliciting Dealer. Participation in the DRIP will begin with the next Distribution payable after receipt of a Participant’s accepted subscription, enrollment or authorization. Shares will be purchased under the DRIP on the date that Distributions are paid by the Company or the Partnership, as the case may be. Each Participant agrees that if, at any time prior to the listing of the Shares on a national stock exchange or inclusion of the Shares for quotation on Nasdaq National Market, he or she fails to meet the suitability requirements for making an investment in the Company or cannot make the other representations or warranties set forth in the Subscription Agreement, he or she will promptly so notify the Company in writing.

      4.     Purchase of Shares. Participants may acquire up to 11,000,000 DRIP Shares from the Company at a price of $7.20 per share, until the earliest of (i) the date that all of the DRIP Shares registered have been issued or (ii) all offerings terminate and the Company elects to deregister with the SEC the unsold DRIP Shares. Participants in the DRIP may also purchase fractional Shares so that 100% of the Distributions will be used to acquire Shares. However, a Participant will not be able to acquire DRIP Shares to the extent that any such purchase would cause such Participant to exceed the Ownership Limit as set forth in the Charter or otherwise would cause a violation of the share ownership restrictions set forth in the Charter.

B-1

      Shares to be distributed by the Company in connection with the DRIP may (but are not required to) be supplied from: (a) the DRIP Shares registered with the SEC in connection with the Company’s Initial Public Offering, (b) Shares to be registered with the SEC in a Future Offering for use in the DRIP (a “Future Registration”), or (c) Shares of the Company’s common stock purchased by the Company for the DRIP in a secondary market (if available) or on a national stock exchange or Nasdaq National Market (if listed) (collectively, the “Secondary Market”).

      Shares purchased in any Secondary Market will be purchased at the then-prevailing market price, which price will be used for purposes of issuing Shares in the DRIP. Shares acquired by the Company in any Secondary Market or registered in a Future Registration for use in the DRIP may be at prices lower or higher than the Share price which will be paid for the DRIP Shares pursuant to the Initial Public Offering.

      If the Company acquires Shares in any Secondary Market for use in the DRIP, the Company shall use its reasonable efforts to acquire Shares at the lowest price then reasonably available. However, the Company does not in any respect guarantee or warrant that the Shares so acquired and purchased by the Participant in the DRIP will be at the lowest possible price. Further, irrespective of the Company’s ability to acquire Shares in any Secondary Market or to make a Future Offering for Shares to be used in the DRIP, the Company is in no way obligated to do either, in its sole discretion.

      5.     Taxation of Distributions. The reinvestment of Distributions in the DRIP does not relieve Participants of any taxes which may be payable as a result of those Distributions and their reinvestment pursuant to the terms of this Plan.

      6.     Stock Certificates. The ownership of the Shares purchased through the DRIP will be in book-entry form unless and until the Company issues certificates for its outstanding common stock.

      7.     Reports. Within 90 days after the end of the Company’s fiscal year, the Company shall provide each Stockholder with an individualized report on his or her investment, including the purchase date(s), purchase price and number of Shares owned, as well as the dates of Distribution payments and amounts of Distributions paid during the prior fiscal year.

      8.     Termination by Participant. A Participant may terminate participation in the DRIP at any time, without penalty by delivering to the Company a written notice. Prior to listing of the Shares on a national stock exchange or Nasdaq National Market, any transfer of Shares by a Participant to a non-Participant will terminate participation in the DRIP with respect to the transferred Shares. Any transfer of OP Interests by a Participant to a non-Participant at any time will terminate participation in the DRIP with respect to the transferred OP Interests. Upon termination of DRIP participation for any reason, Distributions paid subsequent to termination will be distributed to the Stockholder or holder OP Interests in cash.

      9.     Amendment or Termination of DRIP by the Company. The Board of Directors of the Company may by majority vote (including a majority of the Independent Directors) amend or terminate the DRIP for any reason upon 10 days’ written notice to the Participants.

      10.     Liability of the Company. The Company shall not be liable for any act done in good faith, or for any good faith omission to act, including, without limitation, any claims or liability (a) arising out of failure to terminate a Participant’s account upon such Participant’s death prior to receipt of notice in writing of such death; or (b) with respect to the time and the prices at which Shares are purchased or sold for a Participant’s account. To the extent that indemnification may apply to liabilities arising under the Securities Act of 1933, as amended, or the securities laws of a particular state, the Company has been advised that, in the opinion of the SEC and certain state securities commissioners, such indemnification is contrary to public policy and, therefore, unenforceable.

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Until                   , 2005, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as soliciting dealers.

We have not authorized any dealer, salesperson or other individual to give any information or to make any representations that are not contained in this prospectus. If any such information or statements are given or made, you should not rely upon such information or representation. This prospectus does not constitute an offer to sell any securities other than those to which this prospectus relates, or an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. This prospectus speaks as of the date set forth below. You should not assume that the delivery of this prospectus or that any sale made pursuant to this prospectus implies that the information contained in this prospectus will remain fully accurate and correct as of any time subsequent to the date of this prospectus.

TABLE OF CONTENTS

	Page
Suitability Standards		i
Prospectus Summary		1
Questions and Answers About this Offering		6
Cautionary Note Regarding Forward-Looking Statements		13
Risk Factors		14
Estimated Use of Proceeds		33
Management		35
Management Compensation		46
Stock Ownership		52
Conflicts of Interest		53
Investment Objectives and Acquisition Policies		59
Plan of Operation		67
Prior Performance Summary		73
Federal Income Tax Considerations		74
ERISA Considerations		85
Description of Stock		90
The Operating Partnership Agreement		103
Plan of Distribution		107
Supplemental Sales Material		113
Legal Matters		113
Experts		113
Where You Can Find More Information		113
Electronic Delivery of Documents		114
Index to Consolidated Balance Sheets and Prior Performance Tables		F-1
Appendix A — Subscription Agreement (Sample) with Instructions		A-1
Appendix B — Dividend Reinvestment Plan		B-1

Our shares are not FDIC insured, may lose value and are not bank guaranteed. See “Risk Factors” beginning on page 14 to read about risks you should consider before buying shares of our stock.

Maximum Offering of

$434,400,000 —

55,400,000 Shares

of Common Stock

Minimum Offering of

$1,000,000 —

125,000 Shares

of Common Stock

PROSPECTUS

Pacific Cornerstone Capital, Inc

                    , 2005

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

Item 31.     Other Expenses of Issuance and Distribution

      The following table sets forth the costs and expenses payable by us in connection with the distribution of the securities being registered. All amounts are estimated except the SEC registration fee and the NASD filing fee.

Item		Amount
SEC registration fee		$	51,648
NASD filing fee			30,500
Legal fees and expenses			1,025,000
Blue sky fees and expenses			150,000
Accounting fees and expenses			200,000
Sales and advertising expenses			1,800,000
Printing			1,000,000
Postage and delivery of materials			500,000
Expense reimbursement for education and training meetings			45,000
Advisor employee costs			1,900,000
Retail seminars — sponsor			300,000
IT systems and equipment			250,000
Due diligence			328,000
Order processing and escrow			120,000
Miscellaneous expenses			570,852
	Total	$	8,271,000

Item 32.     Sales to Special Parties

      Not applicable.

Item 33.     Recent Sales of Unregistered Securities

      In connection with our incorporation, on November 9, 2004 we issued 125 shares of our common stock to Terry G. Roussel, an affiliate of our advisor, for $1,000 cash in a private offering exempt from the registration requirements pursuant to Section 4(2) of the Securities Act.

Item 34.     Indemnification of Directors and Officers

      Subject to the significant conditions set forth below, the Company’s charter provides that the Company shall indemnify a director, officer or the advisor or any of its affiliates (each an “Indemnitee”) against any and all losses or liabilities reasonably incurred by such Indemnitee (other than when sued by or in right of the Company) in connection with or by reason of any act or omission performed or omitted to be performed on behalf of the Company in such capacity unless:

•  such Indemnitee’s act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty;

•  such Indemnitee actually received an improper personal benefit in money, property or services; or

•  in the case of any criminal proceeding, such Indemnitee had reasonable cause to believe that the act or omission was unlawful.

      In addition, under the Company’s charter, the Company shall not indemnify an Indemnitee for any liability or loss suffered by an Indemnitee, unless all of the following conditions are met: (i) an

II-1

Indemnitee has determined, in good faith, that the course of conduct that caused the loss or liability was in the best interests of the Company; (ii) the Indemnitee was acting on behalf of or performing services for the Company; (iii) such liability or loss was not the result of (A) negligence or misconduct by the Indemnitee, excluding an Independent Director; or (B) gross negligence or willful misconduct by an Independent Director; and (iv) such indemnification or agreement to hold harmless is recoverable only out of the Company’s net assets and not from its stockholders. Notwithstanding the foregoing, an Indemnitee shall not be indemnified by the Company for any losses, liability or expenses arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; and (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Commission and of the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws.

      The charter provides that the advancement of Company funds to an Indemnitee for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought is permissible only if (in addition to the procedures required by Maryland law) all of the following conditions are satisfied: (i) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company; (ii) the legal action is initiated by a third party who is not a stockholder or the legal action is initiated by a stockholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and (iii) the Indemnitee undertakes to repay the advanced funds to the Company, together with the applicable legal rate of interest thereon, in cases in which such Indemnitee is found not to be entitled to indemnification.

      It is the position of the Commission that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act.

      The Company also has purchased and maintains insurance on behalf of all of its Directors and executive officers against liability asserted against or incurred by them in their official capacities with the Company, whether or not the Company is required or has the power to indemnify them against the same liability.

Item 35.     Treatment of Proceeds from Stock Being Registered

      Not applicable.

Item 36.     Exhibits and Financial Statement Schedules

      (a) The following financial statements are filed as part of the registration statement

      Report of Independent Registered Public Accounting Firm (included in prospectus)

      Consolidated Balance Sheets at July 15, 2005 and December 31, 2004 (included in prospectus)

      Notes to Consolidated Balance Sheets (included in prospectus)

      Schedule II — Valuation and Qualifying Accounts has been omitted because of the absence of the conditions under which it is required or because the information required by such omitted schedule is set forth in the financial statements or the notes thereto.

      (b) The following exhibits are filed as part of this registration statement:

Ex.	Description
1.1	Form of Dealer Manager Agreement***
1.2	Form of Participating Broker Agreement***

II-2

Ex.	Description
3.1	Articles of Incorporation, as amended*
3.2	Form of Amendment and Restatement of Articles of Incorporation***
3.3	Bylaws***
4.1	Subscription Agreement (included as Appendix A to prospectus)
4.2	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates)*
4.3	Distribution Reinvestment Plan (included as Appendix B to prospectus)
4.4	Form of Escrow Agreement between registrant and U.S. Bank, N.A.*
5.1	Form of Opinion of Venable LLP re legality*
8.1	Form of Opinion of Preston Gates & Ellis LLP re tax matters***
10.1	Form of Advisory Agreement***
10.2	Agreement of Limited Partnership of Cornerstone Operating Partnership, L.P.***
10.3	Form of Employee and Director Stock Incentive Plan*
23.1	Consent of Preston Gates & Ellis LLP**
23.2	Consent of BDO Seidman, LLP**
24.1	Power of Attorney**

     * Previously filed

 ** Filed herewith

*** Amended version filed herewith

Item 37.     Undertakings

      (a) The Registrant undertakes to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the “Act”); (ii) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.

      (b) The Registrant undertakes (i) that, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof, (ii) that all post-effective amendments will comply with the applicable forms, rules and regulations of the Commission in effect at the time such post-effective amendments are filed, and (iii) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

      (c) The Registrant undertakes to send to each stockholder, at least on an annual basis, a detailed statement of any transactions with the Advisor or its affiliates, and of fees, commissions, compensation and other benefits paid, or accrued to the Advisor or its affiliates, for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed.

      (d) The Registrant undertakes to file a sticker supplement pursuant to Rule 424(c) under the Act during the distribution period describing each property not identified in the prospectus at such time as there arises a reasonable probability that such property will be acquired and to consolidate all such stickers into a post-effective amendment filed at least once every three months with the information contained in such amendment provided simultaneously to the existing stockholders; each sticker supplement should

II-3

disclose all compensation and fees received by the Advisor and its affiliates in connection with any such acquisition; the post-effective amendment shall include audited financial statements meeting the requirements of Rule 3-14 of Regulation S-X only for properties acquired during the distribution period.

      (e) The Registrant undertakes to file, after the end of the distribution period, a current report on Form 8-K containing the financial statements and any additional information required by Rule 3-14 of Regulation S-X, to reflect each commitment (i.e., the signing of a binding purchase agreement) made after the end of the distribution period involving the use of 10% or more (on a cumulative basis) of the net proceeds of the offering and to provide the information contained in such report to the stockholders at least once each quarter after the distribution period of the offering has ended.

      (f) The Registrant undertakes to provide to the stockholders the financial statements required by Form 10-K for the first full fiscal year of operations.

      (g) The Registrant undertakes to furnish to each stockholder, within forty-five (45) days after the close of each quarterly period, the information specified by Form 10-Q.

      (h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

      (i) The Registrant undertakes to provide to the dealer manager at the closings specified in the dealer manager agreement the following: (i) if the securities are certificated, certificates in such denominations and registered in such names as required by the dealer manager to permit prompt delivery to each purchaser or (ii) if the securities are not certificated, a written statement of the information required on certificates which is required to be delivered to stockholders to permit prompt delivery to each purchaser.

II-4

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this pre-effective amendment no. 4 to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newport Beach, State of California, on August 30, 2005.

CORNERSTONE CORE PROPERTIES REIT, INC.

By  /s/ TERRY G. ROUSSEL

Terry G. Roussel

Chief Executive Officer

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Terry G. Roussel and Sharon C. Kaiser, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this registration statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on August 30, 2005:

Name	Title
/s/ TERRY G. ROUSSEL Terry G. Roussel	Chief Executive Officer and Director (Principal Executive Officer)
/s/ SHARON C. KAISER Sharon C. Kaiser	Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ PAUL DANCHIK Paul Danchik	Director
/s/ JOSEPH H. HOLLAND Joseph H. Holland	Director
/s/ DANIEL L. JOHNSON Daniel L. Johnson	Director
/s/ LEE POWELL STEDMAN Lee Powell Stedman	Director

II-5

EXHIBIT INDEX

Ex.	Description
1.1	Form of Dealer Manager Agreement***
1.2	Form of Participating Broker Agreement***
3.1	Articles of Incorporation, as amended*
3.2	Form of Amendment and Restatement of Articles of Incorporation***
3.3	Bylaws***
4.1	Subscription Agreement (included as Appendix A to prospectus)
4.2	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates)*
4.3	Dividend Reinvestment Plan (included as Appendix B to prospectus)
4.4	Form of Escrow Agreement between registrant and U.S. Bank, N.A.*
5.1	Form of Opinion of Venable LLP re legality*
8.1	Form of Opinion of Preston Gates & Ellis LLP re tax matters***
10.1	Form of Advisory Agreement***
10.2	Agreement of Limited Partnership of Cornerstone Operating Partnership, L.P.***
10.3	Form of Employee and Director Stock Incentive Plan*
23.1	Consent of Preston Gates & Ellis LLP**
23.2	Consent of BDO Seidman, LLP**
24.1	Power of Attorney (included on signature page)**

     * Previously filed

 ** Filed herewith

*** Amended version filed herewith

EX-1.1

                                                                     EXHIBIT 1.1


                     CORNERSTONE CORE PROPERTIES REIT, INC.


                        FORM OF DEALER MANAGER AGREEMENT

                     Up to 55,400,000 Shares of Common Stock

Pacific Cornerstone Capital, Incorporated
4590 MacArthur Blvd.
Suite 610
Newport Beach, California 92660

Dear Sirs:


      Cornerstone Core Properties REIT, Inc., a Maryland corporation (the
"Company"), is registering for public sale a maximum of 55,400,000 shares of its
common stock, $0.001 par value per share, (the "Shares"), to be issued and sold
for an aggregate maximum purchase price of $434,400,000 (44,400,000 Shares to be
offered to the public and 11,000,000 Shares to be offered pursuant to the
Company's dividend reinvestment plan ("DRP")). The Shares are to be sold to
selected persons or entities acceptable to the Company, upon the terms and
subject to the conditions set forth in the enclosed Prospectus.


      The Company hereby invites you, Pacific Cornerstone Capital, Inc., a
California corporation (the "Dealer Manager"), to become the dealer manager in
connection with the offer and sale of the Shares. By your acceptance hereof, you
agree to act in such capacity and to use commercially reasonable efforts to find
purchasers for the Shares in accordance with the terms and conditions of the
Prospectus and this Agreement, but with no obligation or understanding, express
or implied, that you are making a commitment to purchase or sell the Shares. You
agree to use commercially reasonable efforts to find purchasers of Shares both
directly and indirectly through a selling group consisting of participating
brokers ("Participating Brokers") with whom you shall contract pursuant to a
Participating Broker Agreement substantially in the form attached as Attachment
1 hereto or such other form as may be requested by a Participating Broker
provided the consent of the Company is obtained for the use of such form.

      Accompanying this Agreement is a copy of the Prospectus and the
Supplemental Material (as hereinafter defined) prepared by the Company for use
in conjunction with the offer and sale of the Shares. You are not authorized to
use any solicitation material other than that referred to in this section, which
material has been furnished by the Company.

      Except as described in the Prospectus or in Section 3(d) hereof, the
Shares are to be sold for a per Share cash price as follows:




Distribution Channel                        Public Shares              DRP Shares
- --------------------                        -------------              ----------
                                                                 
Participating Brokers                          $8.00                     $7.20


Participating Brokers Deferring
Commission                                     $7.52                     $7.20
Fee for Service Investment Advisers            $7.44                     $7.20



      1.    Representations and Warranties of the Company.

            The Company represents and warrants to Dealer Manager and
Participating Brokers that:

            (a) The Company has prepared and filed with the Securities and
Exchange Commission (the "SEC") a registration statement (Registration No.
333-121238) which has become effective for the registration of the Shares
under the Securities Act of 1933, as amended (the "Securities Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the SEC
promulgated thereunder. Copies of such registration statement

                                       1


as initially filed and each amendment thereto have been or will be delivered to
the Dealer Manager. The registration statement and the prospectus contained
therein, as finally amended at the effective date of the registration statement
(the "Effective Date"), are respectively hereinafter referred to as the
"Registration Statement" and the "Prospectus," except that if the Company files
a prospectus or prospectus supplement pursuant to Rule 424(b) under the
Securities Act, or if the Company files a post-effective amendment to the
Registration Statement, the term "Prospectus" includes the prospectus filed
pursuant to Rule 424(b) or the prospectus included in such post-effective
amendment. The term "Preliminary Prospectus" as used herein shall mean a
preliminary prospectus related to the Shares as contemplated by Rule 430 or Rule
430A of the Rules and Regulations included at any time as part of the
Registration Statement.

            (b) On the date that any Preliminary Prospectus was filed with the
SEC, on the Effective Date, on the date of the Prospectus, on the date the
Minimum Offering (as hereinafter defined) is obtained and when any
post-effective amendment to the Registration Statement becomes effective or any
amendment or supplement to the Prospectus is filed with the SEC, the
Registration Statement, each Preliminary Prospectus and the Prospectus, as
applicable, including the financial statements contained therein, complied or
will comply with the Securities Act and the Rules and Regulations. On the
Effective Date, the Registration Statement did not or will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. On the
date of the Prospectus, as amended or supplemented, as applicable, and on the
date the Minimum Offering is obtained, the Prospectus did not or will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing provisions of this Section
1(b) will not extend to such statements contained in or omitted from the
Registration Statement or the Prospectus, as amended or supplemented, as are
primarily within the knowledge of the Dealer Manager or any of the Participating
Brokers and are based upon information furnished by the Dealer Manager in
writing to the Company specifically for inclusion therein.

            (e) All additional written, audio or audio-visual material,
including an investment summary, audio tape, video tape and internet site
prepared by the Company for use in conjunction with the offer or sale of the
Shares ("Supplemental Material") will be distributed by the Company only in full
compliance with the requirements of the Act (including, without limitation, the
requirement that such Supplemental Material not be delivered to any prospective
purchaser unless accompanied or preceded by a Prospectus), and at the time the
Registration Statement is declared effective and at all times subsequent thereto
up to and including the Termination Date, such Supplemental Material has not
contained and will not contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

            (d) No order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus has been issued and no proceedings for that purpose
are pending, threatened, or, to the knowledge of the Company, contemplated by
the SEC; and to the knowledge of the Company, no order suspending the offering
of the Shares in any jurisdiction has been issued and no proceedings for that
purpose have been instituted or threatened or are contemplated.

            (e) The Company intends to use the funds received from the sale of
the Shares as set forth in the Prospectus.

            (f) The Company will obtain an opinion of Preston Gates & Ellis LLP
confirming that based on the proposed method of operation of the Company, the
Company is in a position to qualify for taxation as a REIT for the taxable year
that will end December 31, 2005. The conditions on which the opinion will be
issued will be met at the time of such issuance and will continue to exist.

            (g) The accounting firm which has certified or shall certify the
financial statements filed and to be filed with the SEC as part of the
Registration Statement and the Prospectus is a registered public accounting
firm, as required by the Act and the rules and regulations thereunder.

                                       2


            (h) The Company is a corporation duly organized under the laws of
the State of Maryland, is validly existing as a corporation company under such
laws and has power and authority to conduct business as described in the
Prospectus under the laws of the State of Maryland and every other jurisdiction
in which it conducts business or owns or leases property.

            (i) The Company has full legal right, power and authority to enter
into this Agreement and to perform the transactions contemplated hereby, and the
Company has duly authorized, executed and delivered this Agreement.

            (j) This Agreement is a valid, legal, and binding agreement of the
Company enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the rights of creditors generally.

            (k) The execution and delivery of this Agreement, the consummation
of the transactions herein contemplated and the compliance with the terms of
this Agreement by the Company will not conflict with or constitute a default or
violation under any charter, by-law, contract, indenture, mortgage, deed of
trust, lease, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign, having jurisdiction
over the Company, except to the extent that the enforceability of the indemnity
and contribution provisions contained in Section 7 of this Agreement may be
limited under applicable securities laws.

            (l) No consent, approval, authorization or other order of any
governmental authority is required in connection with the execution or delivery
by the Company of this Agreement or the issuance and sale by the Company of the
Shares, except such as may be required under the securities laws of certain
states, if any, which we have identified to you.

            (m) The Shares have been duly authorized and, upon payment therefor
as provided in this Agreement, will be validly issued, fully paid and
nonassessable and will conform to the description thereof contained in the
Prospectus.

            (n) No closing will take place unless and until funds in respect of
subscriptions for an aggregate of at least $1,000,000 in Shares sold in the
primary offering, acceptable to the Company, have been received by the Company
and payment for such Shares has been deposited in the Escrow Account and
classified as "cleared funds" by the Escrow Agent.

            (o) Prior to accepting any subscription for Shares, the Company will
review the file memoranda or other records maintained by Dealer Manager
substantiating the suitability of the subscribers to purchase Shares, and will
have reasonable grounds to believe and will in fact believe that the subscribers
meet the suitability standards as set forth in the Prospectus or as required by
law and will reject the subscriptions of any subscribers whom the Company does
not have reasonable grounds to believe or does not in fact believe meet said
suitability standards.

            (p) At all times subsequent to the date of this Agreement and up to
and including the Termination Date, the representations and warranties made in
this Section l will be true and correct with the same effect as if they had been
made on and as of such time, except as may subsequently be disclosed in writing
to the Dealer Manager.

      2.    Representations and Warranties of the Dealer Manager.

            As an inducement to the Company to enter into this Agreement, the
Dealer Manager represents and warrants to the Company that:

            (a) The Dealer Manager is a member of the National Association of
Securities Dealers, Inc. (the "NASD") in good standing and a broker-dealer
registered as such under the Exchange Act and under the securities laws of the
states in which the Shares are to be offered and sold. The Dealer Manager and
its employees and representatives have all required licenses and registrations
to act under this Agreement.

                                       3


            (b) The Dealer Manager has full legal right, power and authority to
enter into this Agreement and to perform the transactions contemplated hereby,
and the Dealer Manager has duly authorized, executed and delivered this
Agreement.

            (c) This Agreement is a valid, legal, and binding agreement of the
Dealer Manager enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the rights of creditors generally.

            (d) The execution and delivery of this Agreement, the consummation
of the transactions herein contemplated and the compliance with the terms of
this Agreement by the Dealer Manager will not conflict with or constitute a
default or violation under any charter, by-law, contract, indenture, mortgage,
deed of trust, lease, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality or court, domestic or foreign, having
jurisdiction over the Dealer Manager, except to the extent that the
enforceability of the indemnity and contribution provisions contained in Section
8 of this Agreement may be limited under applicable securities laws.

            (e) No consent, approval, authorization or other order of any
governmental authority is required in connection with the execution, delivery or
performance by the Dealer Manager of this Agreement.

            (f) The Dealer Manager represents and warrants to the Company and
each person that signs the Registration Statement that the information under the
caption "Plan of Distribution" in the Prospectus and all other information
furnished to the Company by the Dealer Manager in writing expressly for use in
the Registration Statement, any Preliminary Prospectus, or the Prospectus, does
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.

            (g) All training and education meetings held by the Dealer Manager
will be in compliance with Rule 2710(i)(2) of the NASD Conduct Rules. Dealer
Manager will require each Participating Broker to represent that all training
and education meetings held by the Participating Broker will be in compliance
with Rule 2710(i)(2) of the NASD Conduct Rules.

            (h) Dealer Manager will obtain NASD approval of any sales incentive
program developed by the Dealer Manager prior to its implementation. Dealer
Manager will require each Participating Broker to represent that all sales
incentive and bonus programs designed by the Participating Broker for its
registered representatives will comply with the NASD Conduct Rules.

            (i) Dealer Manager has established and will maintain a customer
identification program which requires Dealer Manager to (i) verify the identify
of any person seeking to purchase the Shares through Dealer Manager to the
extent reasonable and practicable, (ii) maintain records of the information used
to verify the person's identity and (iii) determine whether the person appears
on any lists of known or suspected terrorists or terrorist organizations
provided to brokers or dealers by any government agency, in all accordance with
the requirements of 31 C.F.R. Section 103.122 and Dealer Manager will also
require the each of the Participating Brokers to represent that it will also do
so.

            (j) Dealer Manager has established and will maintain an anti-money
laundering compliance program in accordance with requirements of the Bank
Secrecy Act and the Money Laundering Abatement and Anti-Terrorist Financing Act
of 1002 and in accordance with the guidance provided by Special NASD Notice to
Members 02-21 and Dealer Manager will also require each of the Participating
Brokers to represent that it will also do so.


      3.    Obligations and Compensation of Dealer Manager.

            (a) The Company hereby appoints the Dealer Manager as its agent and
principal distributor during the Offering Period (as defined in Section 3(c))
for the purpose of finding, on a best efforts basis, purchasers for the Shares
for cash through the Participating Brokers, all of whom shall be members of the
NASD. The Dealer Manager may also arrange for the sale of Shares for cash
directly to its own clients and customers at the public offering price and
subject to the terms and conditions stated in the Prospectus. The Dealer Manager
hereby accepts such agency and distributorship and agrees to use its best
efforts to find purchasers for the Shares on said terms and conditions,
commencing as soon as practicable.

            (b) The Dealer Manager agrees to be bound by the terms of the Escrow
Agreement dated _____________, 2005 among U.S. Bank, N.A. as escrow agent, the
Dealer Manager and the Company.

            (c) The "Offering Period" shall mean that period during which Shares
may be offered for sale, commencing on the date the registration was filed with
the SEC, during which period offers and sales of the Shares shall occur
continuously unless and until the Offering is terminated as provided herein,
except that the Dealer Manager and the Participating Brokers shall suspend or
terminate offering of the Shares upon request of the Company at any time and
shall resume offering the Shares upon subsequent request of the Company. The
Offering Period shall in all events terminate upon the sale of all of the
Shares. Upon termination of the Offering Period, the Dealer Manager's agency and
this Agreement shall terminate without obligation on the part of the Dealer
Manager or the Company except as set forth in this Agreement.

            (d) Except as may be provided in the "Plan of Distribution" section
of the Prospectus, as compensation for the services rendered by the Dealer
Manager, the Company agrees that it will pay to the Dealer Manager selling
commissions plus a dealer manager fee as follows:

                                       4




                                                 Selling Commissions
                                            -----------------------------
Distribution Channel                        Public Shares     DRP Shares
- --------------------                        -------------     ----------
                                                        
Participating Brokers                           7.0%            0.0%

Fee for Service Investment Advisers             0.0%            0.0%




                                                     Dealer Manager Fee

Distribution Channel                        Public Shares     DRP Shares
- --------------------                        -------------     ----------
                                                        
Participating Brokers                           3.0%             0.0%

Fee for Service Investment Advisers             3.0%             0.0%


            If the Dealer Manager, the Participating Broker and the investor
agree, the selling commissions can be paid on a deferred basis for Shares sold
in the primary offering or pursuant to the DRP. In these instances, the Company
will sell the Shares at a reduced price as set forth above and pay the Dealer
Manager a correspondingly reduced sales commission at the time of sale. The
balance of the normal commission would be paid to the Dealer Manager over six
years for Shares sold in the primary offering, or four years for Shares sold in
the DRP, out of the dividends or other distributions that are declared and paid
with respect to the reduced-priced shares sold through the Dealer Manager or
Participating Broker. The amount by which by the investor's dividends are
reduced in these cases would be paid by the Company as deferred commissions to
the Dealer Manager (and by the Dealer Manager to the Participating Brokers for
Shares sold by the Participating Brokers).

            As an example, investors electing the deferred commission option for
Shares purchased in the primary offering will pay, on the date of purchase,
$7.52 per Share (which includes a commission of $0.08 per Share). For a period
of six years following the date of purchase, an additional $0.08 per Share will
be deducted annually from dividends or other cash distributions otherwise
payable to the investor and will be used to pay deferred commissions. The net
proceeds to the Company will not be affected by the election of the deferred
commission option. Under this arrangement, an investor electing the deferred
commission option will pay a 1% commission upon subscription, rather than a 7%
commission, and an amount equal to a 1% commission per year thereafter for the
next six years, or longer if required to satisfy outstanding deferred commission
obligations, will be deducted from dividends or other cash distributions
otherwise payable to such stockholder. The Company may also use other deferred
commission structures, but the Company will not pay total commissions in excess
of 7% of the offering price of the Shares.

            If at any time prior to the satisfaction of the Company's remaining
deferred commission obligations, the Company decides to list its common stock
for trading on national securities exchange, the Nasdaq National Market or other
over-the-counter market, or the Company begins a liquidation of its properties,
the Company may accelerate the remaining commissions due under the deferred
commission option. To the extent that the distributions prior to listing are
insufficient to satisfy the remaining commissions due, the obligations of the
Company and the investor to pay any further deferred commissions will terminate,
and the Dealer Manager and the Participating Brokers will not be entitled to
receive any further portion of their deferred commissions following listing of
the Company's common stock.



            The Company will also pay the Dealer Manager for bona fide due
diligence expenses of the Dealer Manager and the Participating Brokers in the
amount of up to 0.5% of the gross offering proceeds from the sale of the
44,400,000 shares offered to the public. In no event will bona fide due
diligence expenses in excess of 0.5% of the gross proceeds from the sale of
44,400,000 shares offered to the public be paid by the Company to the Dealer
Manager.

            In no event will any commissions or fees be advanced until funds in
respect of subscriptions for an aggregate of at least 125,000 Shares sold in the
primary offering, acceptable to the Company, have been received by the Company
and payment for such Shares has been deposited in the Escrow Account and
classified as "cleared funds" by the Escrow Agent.


                                       5


            (e) The Dealer Manager will not represent or imply that U.S. Bank,
N.A., as the escrow agent identified in the Prospectus, has investigated the
desirability or advisability of investment in the Company or has approved,
endorsed or passed upon the merits of the Shares or the Company, nor will the
Dealer Manager use the name of said escrow agent in any manner whatsoever in
connection with the offer or sale of the Shares other than by acknowledgment
that it has agreed to serve as escrow agent.

            (f) Notwithstanding anything else herein to the contrary, Dealer
Manager agrees that it will not sell any Shares through the DRP to any Adviser
Affiliated Stockholder while such stockholder may still purchase Shares in the
primary offering for a price less than the price available under the DRP. After
the primary offering closes, or if at any time the shares offered under the DRP
are offered at a price per share less than that offered pursuant to this
agreement to Adviser Affiliated Stockholders, the Dealer Manager may sell Shares
through the DRP to an Adviser Affiliated Stockholder at the then applicable DRP
purchase price.

      4.    Sale of the Shares.

            A subscription agreement ("Subscription Agreement") must be
completed by each person desiring to purchase Shares, or, at Dealer Manager's or
Participating Broker's option, by Dealer Manager or Participating Broker on
behalf of each such person, and returned by Dealer Manager or Participating
Broker together with any other documents that may be required under state
securities laws or by the Company, to the Company at 4590 MacArthur Blvd., Suite
610, Newport Beach, California 92660, Attention: Terry G. Roussel. The Dealer
Manager or Participating Broker shall ascertain that the Subscription Agreement
has been properly completed in full and signed by the prospective purchaser
prior to its return.

            All subscription checks shall be made payable to the order of USB
ESCROW NO. ________ FOR CORNERSTONE CORE PROPERTIES REIT, INC. until the Minimum
Subscription Date (as hereinafter defined) and thereafter all subscription
checks shall be made payable to CORNERSTONE CORE PROPERTIES REIT, INC. If Dealer
Manager or Participating Broker receives a check not conforming to the foregoing
instructions, Dealer Manager and/or Participating Broker must return such check
directly to the subscriber not later than the end of the next business day
following its receipt. On or before the Minimum Subscription Date, checks
conforming to the foregoing instructions shall be transmitted by Dealer Manager
for deposit directly to U.S. Bank Trust National Association ("Escrow Agent"),
at 550 S. Hope Street, Suite 500, Los Angeles, California 90071 as soon as
practicable, but in any event by the end of the second business day following
receipt by Dealer Manager. On or before the Minimum Subscription Date, checks
conforming to the foregoing instructions shall be transmitted by Participating
Broker to Dealer Manager at 4590 MacArthur Blvd., Suite 610, Newport Beach,
California 92660 as soon as practicable, but in any event by the end of the next
business day following receipt by Participating Broker. Following the Minimum
Subscription Date, checks conforming to the foregoing instructions shall be
transmitted by Dealer Manager for deposit directly to the Company, at 4590
MacArthur Blvd., Suite 610, Newport Beach, CA 92660 as soon as practicable but
in any event by the end of the second business day following receipt by Dealer
Manager. Following the Minimum Subscription Date, checks conforming to the
foregoing instructions shall be transmitted by Participating Broker for deposit
directly to the Company, at 4590 MacArthur Blvd., Suite 610, Newport Beach, CA
92660 as soon as practicable but in any event by the end of the next business
day following receipt by Participating Broker. In the event Participating
Broker's final internal supervisory review is conducted at a different location,
then checks must be transmitted to Participating Broker's final review office by
the end of the next business day following receipt by Participating Broker and
Participating Broker's final review office must in turn by the end of the next
business day following receipt by it, transmit the check for deposit directly to
the Escrow Agent on or before the Minimum Subscription Date or to the Company
after the Minimum Subscription Date.

            Upon receipt of the Subscription Agreement, the Company, will
determine promptly (and in any event within ten (10) days after such receipt)
whether it wishes to accept the proposed purchaser as a stockholder of the
Company, it being understood that the Company reserves the right to reject the
tender of any Subscription Agreement and to reject all tenders after the
Termination Date. Should the Company determine to accept the tender of the
Subscription Agreement, the Company will promptly advise Dealer Manager or
Participating Broker of such action. Should the Company determine to reject the
tender it will promptly notify in writing the prospective purchaser, Dealer
Manager and Participating Broker, if any, of such determination and will
promptly return the tendered Subscription Agreement and instruct the Escrow
Agent to return the purchase price of the Shares directly to the prospective
purchaser if the determination is made on or before the Minimum Subscription
Date or the Company

                                       6


will return the purchase price of the Shares directly to the prospective
purchaser if the determination is made after the Minimum Subscription Date.

            All payments received on or prior to the Minimum Subscription Date,
except as hereinafter provided, from purchasers of Shares shall be transmitted
directly to the Escrow Agent and deposited in an escrow account (the "Escrow
Account") with Escrow Agent. Such funds may be temporarily invested in bank
savings accounts, bank or money market accounts, bank short-term certificates of
deposit of U.S. banks having a net worth of $100 million, or short-term U.S.
government issued or guaranteed obligations. Prior to the Minimum Subscription
Date, the Company will have no right to obtain any funds from the Escrow Agent.
Funds for Shares purchased on or before the Minimum Subscription Date shall be
made available to the Company, or its order, by the Escrow Agent, on the Minimum
Subscription Date.

            The Dealer Manager will offer Shares, and in its agreements with
Participating Brokers will require that the Participating Brokers offer Shares,
only to persons who meet the financial qualifications set forth in the
Prospectus or in any suitability letter or memorandum sent to it by the Company
and will only make offers to persons in the states in which it is advised in
writing that the Shares are qualified for sale or that such qualification is not
required. In offering Shares, the Dealer Manager will, and in its agreements
with Participating Brokers, the Dealer Manager will, require that the
Participating Brokers comply with the provisions of all applicable rules and
regulations relating to suitability of investors, including without limitation,
the provisions of Article III.C. of the Statement of Policy Regarding Real
Estate Investment Trusts of the North American Securities Administrators
Association, Inc. (the "NASAA Guidelines"). In making the determinations as to
suitability required by the NASAA Guidelines, the Dealer Manager may rely on
representations from (i) investment advisers who are not affiliated with a
Participating Broker or (ii) banks acting as trustees or fiduciaries. With
respect to the maintenance of records required by the NASAA Guidelines, the
Company agrees that the Dealer Manager can satisfy its obligations by
contractually requiring such information to be maintained by the investment
advisers or banks discussed in the preceding sentence. Except as set forth in
Section 1(o), nothing contained in this Section 4 shall be construed to impose
upon the Company the responsibility of assuring that prospective purchasers meet
the suitability standards contained in the Prospectus and the Subscription
Agreement or to relieve Dealer Manager and Participating Brokers of the
responsibility of complying with the Conduct Rules of the National Association
of Securities Dealers, Inc. ("NASD").

      5.    Termination Date and Minimum Subscription Closing Date.

            As used herein, the term "Termination Date" shall mean the earliest
to occur of (i) the date upon which subscriptions for the maximum number of
Shares offered have been accepted by the Company which date the Company shall
designate by notice to Dealer Manager in writing; or (ii) ______________, 2007.
The Company may terminate the offering of Shares at any time for any reason by
written notice to the Dealer Manager at least two (2) business days prior to the
date of termination.

            As used herein, the term "Minimum Subscription Date" shall mean the
earlier of the date on which the Company shall mail or otherwise furnish to
Dealer Manager notification that subscriptions and payments for an aggregate of
at least $1,000,000 in Shares have been received and accepted by the Company and
deposited with the Escrow Agent. In the event that subscriptions and payments
for an aggregate of at least $1,000,000 in Shares shall not have been received
and accepted by the Company on or prior to ________________, 2006, subject to
Section 10, this Agreement will terminate and the Company shall not have any
further obligation or liability hereunder to Dealer Manager or Participating
Brokers. In the event of such termination, all purchase payments deposited with
the Escrow Agent shall be returned to the subscribers and no selling commissions
(as described below) will be payable.

      6.    Further Agreements of the Company.

            (a) The Company covenants and agrees that it will pay or cause to be
paid (i) all expenses and fees in connection with the preparation, printing,
filing, delivery and shipping of the Registration Statement (including this
Agreement and all other exhibits to the Registration Statement), the Prospectus
and any amendments or supplements thereto and the Supplemental Material, (ii)
filing fees, Company counsel's fees and expenses paid and incurred in connection
with the registration and qualification of the Shares for offer and sale by
Dealer Manager and Participating Brokers under the Act and the securities or
Blue Sky laws of the states in which offers are to be

                                       7


made, and (iii) filing fees, Company counsel's fees and expenses paid and
incurred in connection with the review by the NASD of the terms of the offering
of the Shares.

            (b) The Company will advise Dealer Manager and Participating Brokers
promptly of the issuance of any stop order withdrawing the qualification for the
offer and sale of the Shares or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible the lifting thereof, if issued.

            (c) If at any time when a Prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a result
of which, in the opinion of counsel for the Company, the Prospectus as amended
or supplemented includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company promptly will prepare and file with the SEC
an appropriate amendment or supplement.

            (d) The Company will deliver to Dealer Manager and Participating
Brokers from time to time without charge as many copies of the Prospectus (and,
in the event of an amendment or supplement to the Prospectus pursuant to the
provisions of this Agreement, of such amended or supplemented Prospectus) and
the Supplemental Material as Dealer Manager or Participating Brokers may
reasonably request, which Prospectus(s), as from time to time amended or
supplemented, and Supplemental Material the Company authorizes Dealer Manager
and Participating Brokers to use in connection with the sale of the Shares.

            (e) The Company will use its best efforts to register and qualify
the Shares for sale under the laws of those states and other jurisdictions where
it is intended that offers and sales will be made and will comply to the best of
its ability with the laws of those states so as to permit the continuance of
sales of the Shares thereunder. The Company covenants and agrees that neither
the Company, nor any officer, manager or employee of either of them will make
any offer or sale of the Shares unless such offer or sale is made in compliance
with the Act and the rules and regulations thereunder.

            (f) The Company agrees to do or cause to be done all such filing,
recording, publishing and other acts as may be appropriate to comply with the
requirements of law for the operation of a foreign corporation in all
jurisdictions, other than Maryland, where the Company shall desire to conduct
business or own properties as the case may be.

      7.    Agreements of Dealer Manager.

            (a) Dealer Manager covenants and agrees to comply, and to use
commercially reasonable efforts to cause the Participating Brokers to comply,
with any applicable requirements of the Act, and of the 1934 Act, and the
published rules and regulations thereunder, and the Conduct Rules of the NASD
and, in particular, the Conduct Rules which require Dealer Manager (i) to
recommend the purchase of Shares only when Dealer Manager has reasonable grounds
to believe that the investment is suitable for the investor, and that the
investor is in a financial position to sustain the risks inherent in the
investment including loss of investment and lack of liquidity, (ii) to maintain
certain files concerning the basis for Dealer Manager's determination of the
suitability of the investor, (iii) to determine the adequacy and accuracy of the
disclosure in the Prospectus, and (iv) to inform the prospective investor of all
pertinent facts relating to the liquidity and marketability of the investment
during the term of the investment. Dealer Manager also agrees not to deliver the
Supplemental Material to any person unless the Supplemental Material is
accompanied or preceded by the Prospectus. Dealer Manager agrees that Dealer
Manager will reallow commissions only to other broker-dealers who are members of
the NASD or not subject to registration pursuant to the Securities Exchange Act
of 1934.

            (b) Dealer Manager will not give any information or make any
representation in connection with the offering of the Shares other than those
contained in the Prospectus and Supplemental Material furnished by the Company.
Dealer Manager agrees not to publish, circulate or otherwise use any other
advertisement or solicitation material. Dealer Manager is not authorized to act
as agent of the Company in any connection or transaction, and Dealer Manager
agrees not to act as such agent and not to purport to do so without the prior
written approval of the Company. Dealer Manager agrees that if and when the
Company supplies Dealer Manager with copies of any

                                       8


supplement to the Prospectus, Dealer Manager will affix such copies of such
supplement to copies of the Prospectus already in Dealer Manager's possession,
and that thereafter Dealer Manager will only distribute Prospectuses containing
such supplement and that Dealer Manager will accept subscriptions only from
investors who have received a copy of the Prospectus containing such supplement.
Dealer Manager further agrees to comply with all instructions from the Company
concerning the destruction of out-dated Prospectuses and the use of supplemented
or amended Prospectuses.

            (c) Dealer Manager agrees to solicit purchases of Shares only in the
States and other jurisdictions in which the Company indicates that such
solicitation can be made and in which Dealer Manager has determined that such
solicitation can be made by Dealer Manager and in which Dealer Manager is
qualified to so act.

            (d) Dealer Manager will not sell the Shares pursuant to this
Agreement unless the Prospectus is furnished to the purchaser at least five (5)
business days prior to the execution of the Subscription Agreement and Power of
Attorney, or is sent to such person under circumstances that it would be
received by him five (5) business days prior to his execution of the
Subscription Agreement and Power of Attorney.

            (e) Dealer Manager will use reasonable efforts to select investors
who Dealer Manager reasonably believes meet the investor suitability
requirements which are set forth in the Prospectus and Subscription Agreement
(Exhibit "A" to the Prospectus) and such additional individual state
requirements as are specified in the Subscription Agreement and which are
confirmed by the investors by payment of the purchase price for the Shares
including that each investor be of legal age in the state of his or her
residence. Dealer Manager will maintain, for a period of six years, in Dealer
Manager's files a copy of the Subscription Agreement for each investor for whom
Dealer Manager acts as Dealer Manager.

                  (f) To the extent that information is provided to Dealer
Manager marked "For Broker-Dealer Use Only," Dealer Manager covenants and agrees
not to provide such information to prospective investors.

      8.    Indemnification.

            (a) The Company will indemnify and hold harmless the Participating
Brokers and (to the extent permitted by the Company's charter) the Dealer
Manager, their officers and directors and each person, if any, who controls such
Participating Broker or Dealer Manager within the meaning of Section 15 of the
Securities Act (the "Indemnified Persons") from and against any losses, claims,
damages or liabilities ("Losses"), joint or several, to which such Indemnified
Persons may become subject, under the Securities Act or otherwise, insofar as
such Losses (or actions in respect thereof) arise out of or are based upon (a)
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement or any post-effective amendment thereto or in
the Prospectus or (ii) in any blue sky application or other document executed by
the Company or on its behalf specifically for the purpose of qualifying any or
all of the Shares for sale under the securities laws of any jurisdiction or
based upon written information furnished by the Company under the securities
laws thereof (any such application, document or information being hereinafter
called a "Blue Sky Application"), or (b) the omission or alleged omission to
state in the Registration Statement (including the Prospectus as a part thereof)
or any post-effective amendment thereto or in any Blue Sky Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (c) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, if used prior to the
effective date of the Registration Statement, or in the Prospectus or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Company will
reimburse each Indemnified Person for any legal or other expenses reasonably
incurred by such Indemnified Person, in connection with investigating or
defending such Loss upon final disposition of the proceeding giving rise to such
Loss. Notwithstanding the foregoing provisions of this Section 8(a), the Company
will not be liable in any such case to the extent that any such Loss or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished (x) to the Company by the Dealer Manager or (y) to
the Company or the Dealer Manager by or on behalf of any Participating Broker
specifically for use in the preparation of the Registration Statement or any
such post-effective amendment thereto, any such Blue Sky Application or any such
Preliminary Prospectus or the Prospectus, and, further, the Company will not be
liable in any such case if it is determined that such Participating Broker or
the Dealer Manager was at fault in connection with the Loss, expense or action.
Notwithstanding the foregoing, the Company shall not provide for indemnification
of any Indemnified Persons for any liability or loss suffered by any such
Indemnified Person, unless all of the following conditions are met: (i) the
directors of the Company or the Advisor or its Affiliates have determined, in
good faith, that the course of conduct that caused the loss or liability was in
the best interests of the Company; (ii) the Indemnified Persons were acting on
behalf of or performing services for the Company; (iii) such liability or loss
was not the result of negligence or misconduct by the Indemnified Persons; and
(iv) such indemnification or agreement to hold harmless is recoverable only out
of the Company's Net Asset Value (as defined in the Company's charter) and not
from its stockholders. In addition, the Company shall not indemnify

                                       9


or hold harmless an Indemnified Person for any Losses or expenses arising from
or out of an alleged violation of federal or state securities laws by such party
unless one or more of the following conditions are met: (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular Indemnified Person, (ii) such claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular Indemnified Person and (iii) a court of competent
jurisdiction approves a settlement of the claims against a particular
Indemnified Person and finds that indemnification of the settlement and the
related costs should be made, and the court considering the request for
indemnification has been advised of the position of the Securities and Exchange
Commission and of the published position of any state securities regulatory
authority in which securities of the Company were offered or sold as to
indemnification for violations of securities laws.

            (b) The Dealer Manager will indemnify and hold harmless the Company,
each director of the Company (including any person named in the Registration
Statement, with his consent, as about to become a director), each other person
who has signed the Registration Statement and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act (each a
"Company Indemnitee"), from and against any Losses to which any of the Company
Indemnitees may become subject, under the Securities Act or otherwise, insofar
as such Losses (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement of a material fact contained (x) in the Registration
Statement (including the Prospectus as a part thereof) or any post-effective
amendment thereto or (y) any Blue Sky Application, or (ii) the omission to state
in the Registration Statement (including the Prospectus as a part thereof) or
any post-effective amendment thereto or in any Blue Sky Application a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (iii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, if used prior to the
effective date of the Registration Statement, or in the Prospectus or the
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein in the light of the
circumstances under which they were made not misleading, in the case of each of
clauses (i)-(iii) to the extent, but only to the extent, that such untrue
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Dealer Manager
specifically for use with reference to the Dealer Manager in the preparation of
the Registration Statement or any such post-effective amendments thereto or any
such Blue Sky Application or any such Preliminary Prospectus or the Prospectus,
(iv) any unauthorized use of sales materials, use of unauthorized verbal
representations or use of "For Broker-Dealer Use Only" materials with members of
the public concerning the Shares by the Dealer Manager; (v) any material
violation of this Agreement; (vi) any failure to comply with applicable laws
governing money laundering abatement and anti-terrorism financing efforts,
including applicable NASD Rules, SEC Rules and the USA PATRIOT Act of 2001; or
(vii) any other failure to comply with applicable NASD or SEC Rules. The Dealer
Manager will reimburse the aforesaid parties for any legal or other expenses
reasonably incurred by them in connection with investigating or defending such
Loss, expense or action. This indemnity agreement will be in addition to any
liability that the Dealer Manager may otherwise have.

            (c) Each Participating Broker severally will indemnify and hold
harmless the Company, the Dealer Manager, each of their directors (including any
person named in the Registration Statement, with his consent, as about to become
a director), each other person who has signed the Registration Statement and
each person, if any, who controls the Company and the Dealer Manager within the
meaning of Section 15 of the Securities Act (each, a "Participating Broker
Indemnified Person") from and against any Losses to which a Participating Broker
Indemnified Person may become subject, under the Securities Act or otherwise,
insofar as such Losses (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained (x) in the Registration Statement (including the Prospectus as a part
thereof) or any post-effective amendment thereto or (y) in any Blue Sky
Application, or (ii) the omission or alleged omission to state in the
Registration Statement (including the Prospectus as a part thereof) or any
post-effective amendment thereto or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, if used prior to the
effective date of the Registration Statement, or in the Prospectus or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, in the
case of each of clauses (i)-(iii) to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company or the Dealer Manager by or on behalf of such
Participating Broker specifically for use with reference to such Participating
Broker in the preparation of the Registration Statement or any such
post-effective amendments thereto or any such Blue Sky Application or any such
Preliminary Prospectus, (iv) any unauthorized use of sales materials or use of
unauthorized verbal representations or use of "For Broker-Dealer Use Only"
materials with members of the public concerning the Shares by such Participating
Broker or Participating Broker's representatives or agents in violation of
Section 5 of the

                                       10

Participating Broker Agreement or otherwise; (v) any material violation of this
Agreement; (vi) any failure to comply with applicable laws governing money
laundering abatement and anti-terrorism financing efforts, including applicable
NASD Rules, SEC Rules and the USA PATRIOT Act of 2001; or (vii) any other
failure to comply with applicable NASD or SEC Rules. Each such Participating
Broker will reimburse each Participating Broker Indemnified Person for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such Loss, expense or action. This indemnity agreement will be
in addition to any liability that such Participating Broker may otherwise have.

            (d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 8, notify in writing the indemnifying party of the
commencement thereof. The failure of an indemnified party so to notify the
indemnifying party will relieve the indemnifying party from any liability under
this Section 8 as to the particular item for which indemnification is then being
sought, but not from any other liability that it may have to any indemnified
party. In case any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to participate in the defense thereof,
with separate counsel. Such participation shall not relieve such indemnifying
party of the obligation to reimburse the indemnified party for reasonable legal
and other expenses (subject to Section 8(e) incurred by such indemnified party
in defending itself, except for such expenses incurred after the indemnifying
party has deposited funds sufficient to effect the settlement, with prejudice,
of the claim in respect of which indemnity is sought. Any such indemnifying
party shall not be liable to any such indemnified party on account of any
settlement of any claim or action effected without the consent of such
indemnifying party. Any indemnified party shall not be bound to perform or
refrain from performing any act pursuant to the terms of any settlement of any
claim or action effected without the consent of such indemnified party.

            (e) The indemnifying party shall pay all legal fees and expenses of
the indemnified party in the defense of such claims or actions; provided,
however, that the indemnifying party shall not be obliged to pay legal expenses
and fees to more than one law firm in connection with the defense of similar
claims arising out of the same alleged acts or omissions giving rise to such
claims notwithstanding that such actions or claims are alleged or brought by one
or more parties against more than one indemnified party. If such claims or
actions are alleged or brought against more than one indemnified party, then the
indemnifying party shall only be obliged to reimburse the expenses and fees of
the one law firm that has been selected by a majority of the indemnified parties
against which such action is finally brought; and in the event a majority of
such indemnified parties is unable to agree on which law firm for which expenses
or fees will be reimbursable by the indemnifying party, then payment shall be
made to the first law firm of record representing an indemnified party against
the action or claim. Such law firm shall be paid only to the extent of services
performed by such law firm and no reimbursement shall be payable to such law
firm on account of legal services performed by another law firm.

            (f) If the indemnity agreements contained in this Section 8 are for
any reason unavailable to or insufficient to hold harmless an indemnified party
in respect of any Losses or expenses referred to therein, then each indemnifying
party shall contribute to the aggregate amount of such Losses and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Dealer Manager or Participating Broker on the other hand from the
offering of the Shares in question or (ii) if the allocation provided by clause
(i) is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) but also the
relative fault of the Company on the one hand and of the Dealer Manager or
Participating Broker on the other hand in connection with the statements or
omissions which resulted in such Losses or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Dealer Manager or Participating Broker on the other hand
in connection with the Offering shall be deemed to be in the same respective
proportions as the total net proceeds from the Offering (before deducting
expenses) received by the Company and the total selling commission and any
dealer manager fee actually received by the Dealer Manager or Participating
Broker, in each case as set forth on the cover of the Prospectus, bear to the
aggregate public offering price of the Shares as set forth on such cover. The
relative fault of the Company on the one hand and the Dealer Manager or
Participating Broker on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or by the Dealer Manager or Participating
Broker and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. It is understood
that it would not be just and equitable if contribution pursuant to this Section
8(f) were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations

                                       11


referred to above in this Section 8(f). The aggregate amount of Losses and
expenses incurred by an indemnified party and referred to above in this Section
8(f) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8(f), the Dealer Manager or
Participating Broker shall not be required to contribute any amount in excess of
the amount by which the total price at which the Shares sold by it exceeds the
amount of any damages that such Dealer Manager or Participating Broker has
otherwise been required to pay by reason of any such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8(f), each director
of the Company, each other person who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act shall have the same rights to contribution as the Company,
and each person, if any, who controls the Dealer Manager or any Participating
Broker within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as such Dealer Manager or Participating Broker.

      9.    Effective Date and Termination.

            Provided that at least one counterpart of this Agreement shall then
have been executed and delivered, this Agreement shall become effective at 12:00
noon, California time, of the first full business day following the effective
date of the Registration Statement or at such later time after the Registration
Statement becomes effective as the Company shall first release the Shares for
sale to the public. For the purpose of this section the Shares shall be deemed
to have been released for sale to the public upon release by the Company of
correspondence or other notification to Dealer Manager indicating the
effectiveness of the Registration Statement, whichever shall first occur.

            Until the Minimum Subscription Closing Date, this Agreement may be
terminated by Dealer Manager at Dealer Manager's option by giving written notice
to the Company if: (a) the Company shall have become a defendant in any
litigation which, in Dealer Manager's opinion, may reasonably be expected to
result in a judgment having materially adverse consequences for the Company or
there shall have been, since the respective dates as of which information is
given in the Registration Statement or the Prospectus, any material adverse
change in the condition, financial or otherwise, of the Company, which change in
Dealer Manager's judgment shall render it inadvisable to proceed with the
delivery of the Shares, or (b) there shall have been any important change in
market levels, major catastrophe, substantial change in national, international
or world affairs, national calamity, postal strike, act of God, or other event
or occurrence which, in Dealer Manager's judgment will materially disrupt the
financial markets of the United States, or (c) trading in securities generally
on the New York Stock Exchange shall have been suspended or minimum prices shall
have been established on such Exchange by the Commission or by such Exchange, or
(d) a general banking moratorium shall have been declared by federal or state
authorities, or (e) the Company has terminated the offering of Shares as
provided in SECTION 2 hereof, or (f) the Company is in breach of this Dealer
Manager Agreement and has failed to cure such breach within 30 days notice from
Dealer Manager to the Company of such breach.

            Following the Minimum Subscription Date, this Agreement may be
terminated by Dealer Manager at Dealer Manager's option by giving notice to the
Company. In any case, his Agreement will terminate at the close of business on
the Termination Date; provided, however, that all fees payable to Dealer Manager
under the terms and conditions hereof shall be paid when due although this
Agreement shall have theretofore been terminated.

            Except as otherwise provided in Section 8, any termination of this
Agreement pursuant to this Section 9 shall be without liability of the Company
to Dealer Manager and without liability on Dealer Manager's part to the Company.

      10.   Survival of Indemnities, Warranties and Representations.

            The indemnity agreements contained in Section 8 hereof, and the
representations and warranties of the Company set forth in Sections l and 6(f)
hereof, shall remain operative and in full force and effect, regardless of

                                       12


any termination or cancellation of this Agreement or any investigation made by
or on behalf of the Company, the Dealer Manager or any controlling person
referred to in Section 8, and shall survive the delivery of and payment for the
Shares, and any successor of Dealer Manager or the Company or of any such
controlling person or any legal representative of any such controlling person,
as the case may be, shall be entitled to the benefit of the respective indemnity
agreements and representations and warranties.

      11.   Notices.

            Except as in this Agreement otherwise provided, (a) whenever notice
is required by the provisions of this Agreement or otherwise to be given to the
Company, such notice shall be in writing addressed to the Company at 4590
MacArthur Blvd., Suite 610, Newport Beach, California 92660, Attention: Terry G.
Roussel, and (b) whenever notice is required by the provisions of this Agreement
or otherwise to be given to Dealer Manager, such notice shall be in writing
addressed to Dealer Manager at 4590 MacArthur Blvd., Suite 610, Newport Beach,
California 92660. Any notice referred to herein may be given in writing or by
facsimile or telephone and if by facsimile or telephone shall be immediately
confirmed in writing. Notice (unless actual) shall be effective upon mailing or
facsimile transmission with confirmation of receipt, as the case may be.

      12.   Persons Entitled To Benefit of Agreement.

            Except as provided in the next sentence, this Agreement is made
solely for the benefit of Dealer Manager, Participating Brokers, the Company or
controlling persons thereof, and their respective successors and assigns, and no
other person shall acquire or have any right by virtue of this Agreement, and
the term "successors and assigns," as used in this Agreement, shall not include
any purchaser, as such purchaser, of any of the Shares. The agreements of the
Company specified in Section 8(a) are made also for the benefit of the
purchasers of the Shares and such purchasers and their successors and assigns
shall be entitled to the indemnification therein provided.

      13.   Not a Separate Entity.

            Nothing contained herein shall constitute the Dealer Manager and
Participating Brokers, or any of them, as an association, partnership,
unincorporated business or other separate entity.

            Please confirm your agreement to become Dealer Manager under the
terms and conditions herein set forth by signing and returning the enclosed
duplicate copy of this Agreement at once to the Company at the address specified
in Section 11 above.

                                    Very truly yours,

                                    CORNERSTONE CORE PROPERTIES REIT, INC.,
                                    a Maryland corporation

                                    By:
                                       -----------------------------------
                                          Terry G. Roussel, President

AGREED AND ACCEPTED:

PACIFIC CORNERSTONE CAPITAL, INC.,
a California corporation

By
  -----------------------------------------------
          Terry G. Roussel, President

Dated: __________, 2005

                                       13

EX-1.2

                                                                     EXHIBIT 1.2


                     CORNERSTONE CORE PROPERTIES REIT, INC.

                     FORM OF PARTICIPATING BROKER AGREEMENT

                     Up to 55,400,000 Shares of Common Stock

Dear Sirs:


      Cornerstone Core Properties REIT, Inc., a Maryland corporation (the
"Company"), is registering for public sale a maximum of 55,400,000 shares of its
common stock, $0.001 par value per share, (the "Shares"), to be issued and sold
for an aggregate maximum purchase price of $434,400,000 (44,400,000 Shares to be
offered to the public and 11,000,000 Shares to be offered pursuant to the
Company's dividend reinvestment plan ("DRP")). The Shares are to be sold to
selected persons or entities acceptable to the Company, upon the terms and
subject to the conditions set forth in the enclosed Prospectus.


      Pacific Cornerstone Capital, Incorporated, a California corporation
("Dealer Manager"), has entered into a dealer manager agreement ("Dealer Manager
Agreement") with the Company pursuant to which it has agreed to act as dealer
manager in connection with the offer and sale of the Shares. Dealer Manager has
agreed to use commercially reasonable efforts to find purchasers of Shares both
directly and indirectly through a selling group consisting of participating
brokers ("Participating Brokers").

      Dealer Manager hereby invites you to become a Participating Broker in
connection with the offer and sale of the Shares. By your acceptance hereof, you
agree to act in such capacity and to use your best efforts to find purchasers
for the Shares in accordance with the terms of the Prospectus and this
Agreement.

      Accompanying this Agreement is a copy of the Prospectus. We may also
provide you with written, audio or audio-visual material, including an
investment summary, audio tape, video tape and internet site ("Supplemental
Material") prepared by the Company for use in conjunction with the offer and
sale of the Shares. You are not authorized to use any solicitation material
other than the Prospectus and Supplemental Material referred to in this
paragraph, which material has been furnished by the Company.

      Except as described in the Prospectus or in SECTION 3(d) hereof, the
Shares are to be sold for a per Share cash price as follows:



Distribution Channel                        Public Shares              DRP Shares
- --------------------                        -------------              ----------
                                                                 
Participating Brokers                         $8.00                      $7.20

Participating Brokers Deferring
Commission                                    $7.52                      $7.20

Fee for Service Investment Advisers           $7.44                      $7.20



      1.    Sale of the Shares.

            A subscription agreement ("Subscription Agreement") must be
completed by each person desiring to purchase Shares, or, at your option, by you
on behalf of each such person, and returned by you together with any other
documents that may be required under state securities laws or by the Company, to
the Company at 4590 MacArthur Blvd., Suite 610, Newport Beach, California 92660,
Attention: Terry G. Roussel. You shall ascertain that the Subscription Agreement
has been properly completed in full and signed by the prospective purchaser
prior to its return.


            All subscription checks shall be made payable to the order of USB
ESCROW NO. ____________ FOR CORNERSTONE CORE PROPERTIES REIT, INC. until the
Minimum Subscription Date and thereafter all subscription checks shall be made
payable to CORNERSTONE CORE PROPERTIES REIT, INC. If you receive a check not
conforming to the foregoing instructions, you must return such check directly to
the subscriber not later than the end of the next




business day following its receipt. Checks conforming to the foregoing
instructions shall be transmitted by you for deposit directly to Dealer Manager
at 4590 MacArthur Blvd., Suite 610, Newport Beach, California 92660 by the end
of the next business day following receipt by you. In the event your final
internal supervisory review is conducted at a different location, then checks
must be transmitted to your final review office by the end of the next business
day following receipt by you and your final review office must in turn, by the
end of the next business day following receipt by it, transmit the check for
deposit directly to the Dealer Manager.

            Upon receipt of the Subscription Agreement, the Company, will
determine promptly (and in any event within ten (10) days after such receipt)
whether it wishes to accept the proposed purchaser as a member in the Company,
it being understood that the Company reserves the right to reject the tender of
any Subscription Agreement and to reject all tenders after the Termination Date,
in each case in its sole discretion. Should the Company determine to accept the
tender of the Subscription Agreement, the Company will promptly advise you of
such action. Should the Company determine to reject the tender, it will promptly
notify in writing the prospective purchaser and you of such determination and
will promptly return the tendered Subscription Agreement and instruct the Escrow
Agent to return the purchase price of the Shares directly to the prospective
purchaser if the determination is made on or before the Minimum Subscription
Date or the Company will return the purchase price of the Shares directly to the
prospective purchaser if the determination is made after the Minimum
Subscription Date.

            All payments received prior to the Minimum Subscription Date, except
as hereinafter provided, from purchasers of Shares shall be transmitted directly
to the Escrow Agent and deposited in an escrow account (the "Escrow Account")
with Escrow Agent. Such funds may be temporarily invested in bank savings
accounts, bank or money market accounts, bank short-term certificates of deposit
of U.S. banks having a net worth of $100 million, or short-term U.S. government
issued or guaranteed obligations. Prior to the Minimum Subscription Closing
Date, the Company will have no right to obtain any funds from the Escrow Agent.
Funds for Shares purchased on or before the Minimum Subscription Date shall be
made available to the Company, or its order, by the Escrow Agent, on the Minimum
Subscription Closing Date.

            You will offer Shares only to persons who meet the financial
qualifications set forth in the Prospectus or in any suitability letter or
memorandum sent to you by the Company and you will only make offers to persons
in the states in which it is advised in writing that the Shares are qualified
for sale or that such qualification is not required. In offering Shares, the you
will comply with the provisions of all applicable rules and regulations relating
to suitability of investors, including without limitation, the provisions of
Article III.C. of the Statement of Policy Regarding Real Estate Investment
Trusts of the North American Securities Administrators Association, Inc. (the
"NASAA Guidelines"). Nothing contained in this Section 1 shall be construed to
impose upon the Company the responsibility of assuring that prospective
purchasers meet the suitability standards contained in the Prospectus and the
Subscription Agreement or to relieve you of the responsibility of complying with
the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD").

      2.    Termination Date and Minimum Subscription Closing Date.

            As used herein, the term "Termination Date" shall mean the earliest
to occur of (i) the date upon which subscriptions for the maximum number of
Shares offered have been accepted by the Company which date the Company shall
designate by notice to Dealer Manager in writing; or (ii) ______________, 2007.
The Company may terminate the offering of Shares at any time for any reason by
written notice to the Dealer Manager at least two (2) business days prior to the
date of termination.

            As used herein, the term "Minimum Subscription Date" shall mean the
earlier of the date on which the Company shall mail or otherwise furnish to
Dealer Manager notification that subscriptions and payments for an aggregate of
at least $1,000,000 in Shares have been received and accepted by the Company and
deposited with the Escrow Agent. In the event that subscriptions and payments
for an aggregate of at least $1,000,000 in  Shares shall not have been received
and accepted by the Company on or prior to ________________, 2006, subject to
Section 10, this Agreement will terminate and the Company shall not have any
further obligation or liability hereunder to you. In the event of such
termination, all purchase payments deposited with the Escrow Agent shall be
returned to the subscribers and no selling commissions (as described below) will
be payable.

                                       2


      3.    Obligations and Compensation of Participating Broker.

            (a) The Dealer Manager hereby appoints you as a distributor during
the Offering Period (as defined in Section 3(b)) for the purpose of finding, on
a best efforts basis, purchasers for the Shares for cash. You hereby accepts
such agency and distributorship and agrees to use its best efforts to find
purchasers for the Shares on said terms and conditions, commencing as soon as
practicable.

            (b) The "Offering Period" shall mean that period during which Shares
may be offered for sale, commencing on the date the registration was filed with
the SEC, during which period offers and sales of the Shares shall occur
continuously unless and until the Offering is terminated as provided herein,
except that you shall suspend or terminate offering of the Shares upon request
of the Company or the Dealer Manager at any time and shall resume offering the
Shares upon subsequent request of the Company or the Dealer Manager. The
Offering Period shall in all events terminate upon the sale of all of the
Shares. Upon termination of the Offering Period, your agency and this Agreement
shall terminate without obligation on your part or the part of the Dealer
Manager or the Company except as set forth in this Agreement.

            (d) Except as may be provided in the "Plan of Distribution" section
of the Prospectus, as compensation for the services rendered by you, the Dealer
Manager agrees that it will pay to you selling commissions plus a marketing
allowance as follows:




             Selling Commissions
             -------------------
Public Shares             DRP Shares
- -------------             ----------
                       
____%                       0.0%





         Marketing Allowance
         -------------------
Public Shares             DRP Shares
- -------------             ----------
                       
____%                       0.0%


            The Dealer Manager will also reimburse you for its reimbursement of
your bona fide due diligence expenses in the amount of up to 0.5% of the gross
offering proceeds attributable to your sales of Shares to the public but not
sales of Shares pursuant to the dividend reinvestment plan.

            If you and the investor agree, the selling commissions can be paid
on a deferred basis for Shares sold in the primary offering or pursuant to the
DRP. In these instances, the Company will sell the Shares at a reduced price as
set forth above and the Dealer Manager will pay you a correspondingly reduced
sales commission at the time of sale. The balance of the normal commission would
be paid by the Company to the Dealer Manager and by the Dealer Manager to you
over six years for Shares sold in the primary offering, or four years for Shares
sold in the DRP, out of the dividends or other distributions that are declared
and paid with respect to the reduced-priced shares sold through you. The amount
by which by the investor's dividends are reduced in these cases would be paid by
the Company as deferred commissions to the Dealer Manager and by the Dealer
Manager to you.

            As an example, investors electing the deferred commission option for
Shares purchased in the primary offering will pay, on the date of purchase,
$7.52 per Share (which includes a commission of $0.08 per Share). For a period
of six years following the date of purchase, an additional $0.08 per Share will
be deducted annually from dividends or other cash distributions otherwise
payable to the investor and will be used to pay deferred commissions. The net
proceeds to the Company will not be affected by the election of the deferred
commission option. Under this arrangement, an investor electing the deferred
commission option will pay a 1% commission upon subscription, rather than a 7%
commission, and an amount equal to a 1% commission per year thereafter for the
next six years, or longer if required to satisfy outstanding deferred commission
obligations, will be deducted from dividends or other cash distributions
otherwise payable to such stockholder. The Company may also use other deferred
commission structures, but the Company will not pay total commissions in excess
of 7% of the offering price of the Shares.

            If at any time prior to the satisfaction of the Company's remaining
deferred commission obligations, the Company decides to list its common stock
for trading on national securities exchange, the Nasdaq

                                       3



National Market or other over-the-counter market, or the Company begins a
liquidation of its properties, the Company may accelerate the remaining
commissions due under the deferred commission option. To the extent that the
distributions prior to listing are insufficient to satisfy the remaining
commissions due, the obligations of the Company and the investor to pay any
further deferred commissions will terminate, and the Dealer Manager and you will
not be entitled to receive any further portion of their deferred commissions
following listing of the Company's common stock.




            In no event will any commissions or fees be advanced until funds in
respect of subscriptions for an aggregate of at least $1,000,000 in Shares sold
in the primary offering, acceptable to the Company, have been received by the
Company and payment for such Shares has been deposited in the Escrow Account and
classified as "cleared funds" by the Escrow Agent.


            (e) You will not represent or imply that U.S. Bank, N.A., as the
escrow agent identified in the Prospectus, has investigated the desirability or
advisability of investment in the Company or has approved, endorsed or passed
upon the merits of the Shares or the Company, nor will you use the name of said
escrow agent in any manner whatsoever in connection with the offer or sale of
the Shares other than by acknowledgment that it has agreed to serve as escrow
agent.

            (f) Notwithstanding anything else herein to the contrary, you agree
that you will not sell any Shares through the DRP to any Adviser Affiliated
Stockholder while such stockholder may still purchase Shares in the primary
offering for a price less than the price available under the DRP. After the
primary offering closes, or if at any time the shares offered under the DRP are
offered at a price per share less than that offered pursuant to this agreement
to Adviser Affiliated Stockholders, you may sell Shares through the DRP to an
Adviser Affiliated Shareholder at the then applicable DRP purchase price.

      4.    Representations, Warranties and Covenants of Participating Broker.
You represent and warrant to and covenant to the Dealer Manager and the Company
that:

            (a) You are a member of the National Association of Securities
Dealers, Inc. (the "NASD") in good standing and a broker-dealer registered as
such under the Exchange Act and under the securities laws of the states in which
the Shares are to be offered and sold. You and your employees and
representatives have all required licenses and registrations to act under this
Agreement.

            (b) You have full legal right, power and authority to enter into
this Agreement and to perform the transactions contemplated hereby, and you have
duly authorized, executed and delivered this Agreement.

            (c) This Agreement is a valid, legal, and binding agreement of yours
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or similar laws affecting the rights of
creditors generally.

            (d) The execution and delivery of this Agreement, the consummation
of the transactions herein contemplated and the compliance with the terms of
this Agreement by you will not conflict with or constitute a default or
violation under any charter, by-law, contract, indenture, mortgage, deed of
trust, lease, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign, having jurisdiction
over you, except to the extent that the enforceability of the indemnity and
contribution provisions contained in SECTION 6 of this Agreement may be limited
under applicable securities laws.

            (e) No consent, approval, authorization or other order of any
governmental authority is required in connection with the execution, delivery or
performance by you of this Agreement.

            (f) You have not violated any of the "bad boy" disqualification
provisions contained in the securities or "blue sky" laws of any jurisdiction in
which the Shares may be offered.

            (g) It will not make any written or oral statement with respect to
the Company or the offering of Shares that is materially inconsistent with the
statements in the Prospectus or Supplemental Material.

                                       4


            (h) You will periodically notify the Dealer Manager of the
jurisdictions in which the Shares are being, or will be, offered by it, and will
periodically notify the Dealer Manager of the status of the offering conducted
pursuant to this Agreement.

            (i) You will cease making offers and soliciting subscriptions for
Shares if so requested by the Dealer Manager in order to comply with applicable
federal and state securities laws, and will forward to offerees for execution
and delivery such additional documents and instruments as the Dealer Manager may
reasonably require.

            (j) You will: (i) maintain all representation letters,
questionnaires and other materials utilized by you to ascertain the satisfaction
of the above criteria by offerees and investors, for a period of at least six
years from the date of the offering is completed; and (ii) make such material
available to the Dealer Manager upon its request.

            (k) Before, during or after the offering, except with the prior
written consent of the Dealer Manager and except for internal-use only purposes
or for the delivery to its advisors, it has not duplicated and will not
duplicate any of the Supplemental Material or other similar selling
documentation furnished to it by the Dealer Manager or the Company.

            (l) It has not paid or awarded, and will not pay or award, directly
or indirectly, any commission or other compensation to any person engaged to
render investment advice to a potential subscriber as an inducement to advise
the purchase of the Shares, except as such commissions or other compensation may
be paid or awarded to it or reallowed by it in connection with the sale of the
Shares as described in the Prospectus.

            (m) All training and education meetings held by the Participating
Broker will be in compliance with Rule 2710(i)(2) of the NASD Conduct Rules.

            (n) All sales incentive and bonus programs designed by the
Participating Broker for its registered representatives will comply with the
NASD Conduct Rules.

            (o) Participating Broker has established and will maintain a
customer identification program which requires Participating Broker to (i)
verify the identify of any person seeking to purchase the Shares through
Participating Broker to the extent reasonable and practicable, (ii) maintain
records of the information used to verify the person's identity and (iii)
determine whether the person appears on any lists of known or suspected
terrorists or terrorist organizations provided to brokers or dealers by any
government agency, in all accordance with the requirements of 31 C.F.R.
Section 103.122.

            (p) Participating Broker has established and will maintain an
anti-money laundering compliance program in accordance with requirements of the
Bank Secrecy Act and the Money Laundering Abatement and Anti-Terrorist Financing
Act of 1002 and in accordance with the guidance provided by Special NASD Notice
to Members 02-21.

      5.    Agreements of Participating Broker.

            (a) You covenant and agree to comply with any applicable
requirements of the Act, and of the 1934 Act, and the published rules and
regulations thereunder, and the Conduct Rules of the NASD and, in particular,
the Conduct Rules which require you (i) to recommend the purchase of Shares only
when you have reasonable grounds to believe that the investment is suitable for
the investor, and that the investor is in a financial position to sustain the
risks inherent in the investment including loss of investment and lack of
liquidity, (ii) to maintain certain files concerning the basis for your
determination of the suitability of the investor, (iii) to determine the
adequacy and accuracy of the disclosure in the Prospectus, and (iv) to inform
the prospective investor of all pertinent facts relating to the liquidity and
marketability of the investment during the term of the investment. You also
agree not to deliver the Supplemental Material to any person unless the
Supplemental Material is accompanied or preceded by the Prospectus.

            (b) You will not give any information or make any representation in
connection with the offering of the Shares other than those contained in the
Prospectus and Supplemental Material furnished by the Company. You agrees not to
publish, circulate or otherwise use any other advertisement or solicitation
material. You are not authorized to act as agent of the Company or the Dealer
Manager in any connection or transaction, and you agree not to act as such agent
and not to purport to do so without the prior written approval of the Company
and the Dealer Manager. You agree that if and when the Company or the Dealer
Manager supplies you with copies of any supplement to the Prospectus, you will
affix such copies of such supplement to copies of the Prospectus already in your
possession, and that thereafter you will only distribute Prospectuses containing
such supplement and that you will accept subscriptions only from investors who
have received a copy of the Prospectus containing such supplement. You further
agree to comply with all instructions from the Company or the Dealer Manager
concerning the destruction of out-dated Prospectuses and the use of supplemented
or amended Prospectuses.

            (c) You agree to solicit purchases of Shares only in the States and
other jurisdictions in which the Company indicates that such solicitation can be
made and in which you have determined that such solicitation can be made by you
and in which you are is qualified to so act.

            (d) You will not sell the Shares pursuant to this Agreement unless
the Prospectus is furnished to the purchaser at least five (5) business days
prior to the execution of the Subscription Agreement and Power of Attorney, or
is sent to such person under circumstances that it would be received by him five
(5) business days prior to his execution of the Subscription Agreement and Power
of Attorney.

                                       5


            (e) You will use reasonable efforts to select investors who you
reasonably believe meet the investor suitability requirements which are set
forth in the Prospectus and Subscription Agreement (Exhibit "A" to the
Prospectus) and such additional individual state requirements as are specified
in the Subscription Agreement and which are confirmed by the investors by
payment of the purchase price for the Shares including that each investor be of
legal age in the state of his or her residence. You will, for a period of six
years, maintain in your files a copy of the Subscription Agreement for each
investor for whom you acts as Participating Broker.

            (f) To the extent that information is provided to you marked "For
Broker-Dealer Use Only," you covenant and agree not to provide such information
to prospective investors.

         6.       Indemnification.

            (a) The Company will indemnify and hold harmless you and the other
Participating Brokers and (to the extent permitted by the Company's charter) the
Dealer Manager, their officers and directors and each person, if any, who
controls such Participating Broker or Dealer Manager within the meaning of
Section 15 of the Securities Act (the "Indemnified Persons") from and against
any losses, claims, damages or liabilities ("Losses"), joint or several, to
which such Indemnified Persons may become subject, under the Securities Act or
otherwise, insofar as such Losses (or actions in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained (x) in the Registration Statement or any post-effective
amendment thereto or in the Prospectus or (y) in any blue sky application or
other document executed by the Company or on its behalf specifically for the
purpose of qualifying any or all of the Shares for sale under the securities
laws of any jurisdiction or based upon written information furnished by the
Company under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or (ii) the
omission or alleged omission to state in the Registration Statement (including
the Prospectus as a part thereof) or any post-effective amendment thereto or in
any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, if used prior to the effective date of the Registration
Statement, or in the Prospectus or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Company will reimburse each Indemnified Person for any
legal or other expenses reasonably incurred by such Indemnified Person, in
connection with investigating or defending such Loss upon final disposition of
the proceeding giving rise to such Loss. Notwithstanding the foregoing
provisions of this Section 6(a), the Company will not be liable in any such case
to the extent that any such Loss or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished (i)
to the Company by the Dealer Manager or (ii) to the Company or the Dealer
Manager by or on behalf of any Participating Broker specifically for use in the
preparation of the Registration Statement or any such post-effective amendment
thereto, any such Blue Sky Application or any such Preliminary Prospectus or the
Prospectus, and, further, the Company will not be liable in any such case if it
is determined that such Participating Broker or the Dealer Manager was at fault
in connection with the Loss, expense or action. Notwithstanding the foregoing,
the Company shall not provide for indemnification of any Indemnified Persons for
any liability or loss suffered by any such Indemnified Person, unless all of the
following conditions are met: (i) the directors of the Company or the Advisor or
its Affiliates have determined, in good faith, that the course of conduct that
caused the loss or liability was in the best interests of the Company; (ii) the
Indemnified Persons were acting on behalf of or performing services for the
Company; (iii) such liability or loss was not the result of negligence or
misconduct by the Indemnified Persons; and (iv) such indemnification or
agreement to hold harmless is recoverable only out of the Company's Net Asset
Value (as defined in the Company's charter) and not from its stockholders. In
addition, the Company shall not indemnify or hold harmless an Indemnified Person
for any Losses or expenses arising from or out of an alleged violation of
federal or state securities laws by such party unless one or more of the
following conditions are met: (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular Indemnified Person, (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnified Person and (iii) a court of competent jurisdiction
approves a settlement of the claims against a particular Indemnified Person and
finds that indemnification of the settlement and the related costs should be
made, and the court considering the request for indemnification has been advised
of the position of the Securities and Exchange Commission and of the published
position of any state securities regulatory authority in which securities of the
Company were offered or sold as to indemnification for violations of securities
laws.

            (b) The Dealer Manager has agreed to indemnify and hold harmless the
Company, each director of the Company (including any person named in the
Registration Statement, with his consent, as about to become a director), each
other person who has signed the Registration Statement and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
(each a "Company Indemnitee"), from and against any Losses to which any of the
Company Indemnitees may become subject, under the Securities Act or otherwise,
insofar as such Losses (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement of a material fact contained (x) in the
Registration Statement (including the Prospectus as a part thereof) or any
post-effective amendment thereto or (y) any Blue Sky Application, or (ii) the
omission to state in the

                                       6

Registration Statement (including the Prospectus as a part thereof) or any
post-effective amendment thereto or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, if used prior to the
effective date of the Registration Statement, or in the Prospectus or the
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein in the light of the
circumstances under which they were made not misleading, in the case of each of
clauses (i)-(iii) to the extent, but only to the extent, that such untrue
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Dealer Manager
specifically for use with reference to the Dealer Manager in the preparation of
the Registration Statement or any such post-effective amendments thereto or any
such Blue Sky Application or any such Preliminary Prospectus or the Prospectus,
(iv) any unauthorized use of sales materials or use of unauthorized verbal
representations or use of "For Broker-Dealer Use Only" materials with members of
the public concerning the Shares by the Dealer Manager; (v) any material
violation of this Agreement; (vi) any failure to comply with applicable laws
governing money laundering abatement and anti-terrorism financing efforts,
including applicable NASD Rules, SEC Rules and the USA PATRIOT Act of 2001; or
(vii) any other failure to comply with applicable NASD or SEC Rules. The Dealer
Manager has agreed to reimburse the aforesaid parties for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending such Loss, expense or action. This indemnity agreement of the Dealer
Manager is in addition to any liability that the Dealer Manager may otherwise
have.

            (c) You and each other Participating Broker severally will indemnify
and hold harmless the Company, the Dealer Manager, each of their directors
(including any person named in the Registration Statement, with his consent, as
about to become a director), each other person who has signed the Registration
Statement and each person, if any, who controls the Company and the Dealer
Manager within the meaning of Section 15 of the Securities Act (each, a
"Participating Broker Indemnified Person") from and against any Losses to which
a Participating Broker Indemnified Person may become subject, under the
Securities Act or otherwise, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained (x) in the Registration Statement
(including the Prospectus as a part thereof) or any post-effective amendment
thereto or (y) in any Blue Sky Application, or (ii) the omission or alleged
omission to state in the Registration Statement (including the Prospectus as a
part thereof) or any post-effective amendment thereto or in any Blue Sky
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, if
used prior to the effective date of the Registration Statement, or in the
Prospectus or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in the case of each of clauses (i)-(iii) to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or the Dealer Manager by or on behalf of
such Participating Broker specifically for use with reference to such
Participating Broker in the preparation of the Registration Statement or any
such post-effective amendments thereto or any such Blue Sky Application or any
such Preliminary Prospectus, (iv) any unauthorized use of sales materials or use
of unauthorized verbal representations or use of "For Broker-Dealer Use Only"
materials with members of the public concerning the Shares by such Participating
Broker or Participating Broker's representatives or agents in violation of
Section 5 of this Agreement or otherwise; (v) any material violation of this
Agreement; (vi) any failure to comply with applicable laws governing money
laundering abatement and anti-terrorism financing efforts, including applicable
NASD Rules, SEC Rules and the USA PATRIOT Act of 2001; or (vii) any other
failure to comply with applicable NASD or SEC Rules. Each such Participating
Broker will reimburse each Participating Broker Indemnified Person for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such Loss, expense or action. This indemnity agreement will be
in addition to any liability that such Participating Broker may otherwise have.

            (d) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 6, notify in writing the indemnifying party of the
commencement thereof. The failure of an indemnified party so to notify the
indemnifying party will relieve the indemnifying party from any liability under
this Section 6 as to the particular item for which indemnification is then being
sought, but not from any other liability that it may have to any indemnified
party. In case any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to participate in the defense thereof,
with separate counsel. Such participation shall not relieve such indemnifying
party of the obligation to reimburse the indemnified party for reasonable legal
and other expenses (subject to Section 6(e) incurred by such indemnified party
in defending itself, except for such expenses incurred after the indemnifying
party has deposited funds sufficient to effect the settlement, with prejudice,
of the claim in respect of which indemnity is sought. Any such indemnifying
party shall not be liable to any such indemnified party on account of any
settlement of any claim or action effected without the consent of such
indemnifying party. Any indemnified

                                       7


party shall not be bound to perform or refrain from performing any act pursuant
to the terms of any settlement of any claim or action effected without the
consent of such indemnified party.

            (e) The indemnifying party shall pay all legal fees and expenses of
the indemnified party in the defense of such claims or actions; provided,
however, that the indemnifying party shall not be obliged to pay legal expenses
and fees to more than one law firm in connection with the defense of similar
claims arising out of the same alleged acts or omissions giving rise to such
claims notwithstanding that such actions or claims are alleged or brought by one
or more parties against more than one indemnified party. If such claims or
actions are alleged or brought against more than one indemnified party, then the
indemnifying party shall only be obliged to reimburse the expenses and fees of
the one law firm that has been selected by a majority of the indemnified parties
against which such action is finally brought; and in the event a majority of
such indemnified parties is unable to agree on which law firm for which expenses
or fees will be reimbursable by the indemnifying party, then payment shall be
made to the first law firm of record representing an indemnified party against
the action or claim. Such law firm shall be paid only to the extent of services
performed by such law firm and no reimbursement shall be payable to such law
firm on account of legal services performed by another law firm.

            (f) If the indemnity agreements contained in this Section 6
are for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any Losses or expenses referred to therein, then
each indemnifying party shall contribute to the aggregate amount of such Losses
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Dealer Manager or Participating Broker on the
other hand from the offering of the Shares in question or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) but also the relative fault of the Company on the one hand and of the Dealer
Manager or Participating Broker on the other hand in connection with the
statements or omissions which resulted in such Losses or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Dealer Manager or Participating Broker on
the other hand in connection with the Offering shall be deemed to be in the same
respective proportions as the total net proceeds from the Offering (before
deducting expenses) received by the Company and the total selling commission and
any dealer manager fee actually received by the Dealer Manager or Participating
Broker, in each case as set forth on the cover of the Prospectus, bear to the
aggregate public offering price of the Shares as set forth on such cover. The
relative fault of the Company on the one hand and the Dealer Manager or
Participating Broker on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or by the Dealer Manager or Participating
Broker and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. It is understood
that it would not be just and equitable if contribution pursuant to this Section
6(f) were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 6(f). The aggregate amount of Losses and expenses incurred by an
indemnified party and referred to above in this Section 6(f) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission. Notwithstanding the provisions of
this Section 6(f), the Dealer Manager or Participating Broker shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Shares sold by it exceeds the amount of any damages that such
Dealer Manager or Participating Broker has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 6(f), each director of the Company, each other person who signed
the Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act shall have the same
rights to contribution as the Company, and each person, if any, who controls the
Dealer Manager or any Participating Broker within the meaning of Section 15 of
the Securities Act shall have the same rights to contribution as such Dealer
Manager or Participating Broker.

      7.    Effective Date and Termination.

            This Agreement shall become effective upon its execution and
delivery by Dealer Manager, the Company and you.

                                       8


            Until the Minimum Subscription Closing Date, this Agreement may be
terminated by you or Dealer Manager at your or its option by giving written
notice to the other and the Company if: (a) the Company shall have become a
defendant in any litigation which, in Dealer Manager's or your opinion, may
reasonably be expected to result in a judgment having materially adverse
consequences for the Company or there shall have been, since the respective
dates as of which information is given in the Registration Statement or the
Prospectus, any material adverse change in the condition, financial or
otherwise, of the Company, which change in Dealer Manager's or your judgment
shall render it inadvisable to proceed with the delivery of the Shares, or (b)
there shall have been any important change in market levels, major catastrophe,
substantial change in national, international or world affairs, national
calamity, postal strike, act of God, or other event or occurrence which, in
Dealer Manager's or your judgment, will materially disrupt the financial markets
of the United States, or (c) trading in securities generally on the New York
Stock Exchange shall have been suspended or minimum prices shall have been
established on such Exchange by the Commission or by such Exchange, or (d) a
general banking moratorium shall have been declared by federal or state
authorities, or (e) the Company has terminated the offering of Shares as
provided in Section 2 hereof, or (f) the Company is in breach of this Agreement
or the Dealer Manager Agreement and has failed to cure such breach within 30
days notice from you or Dealer Manager to the Company of such breach.

            Following the Minimum Subscription Closing Date, this Agreement may
be terminated by you or Dealer Manager at your or its option by giving written
notice to the other and the Company. In any case, this Agreement will terminate
at the close of business on the Termination Date; provided, however, that all
fees payable to you under the terms and conditions hereof shall be paid when due
although this Agreement shall have theretofore been terminated.

            Except as otherwise provided in Section 8, any termination of this
Agreement pursuant to this Paragraph 7 shall be without liability of Dealer
Manager and the Company to you and without liability on your part to Dealer
Manager or the Company, except with respect to compensation earned for accepted
subscriptions.

      8.    Survival of Indemnities, Warranties and Representations.

            Your indemnity agreements contained in Section 6 hereof shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of you,
Dealer Manager, the Company, or any controlling person thereof, and shall
survive the delivery of and payment for the Shares, and any successor of the
Company, the Dealer Manager or of any such controlling person or any legal
representative of any such controlling person, as the case may be, shall be
entitled to the benefit of your indemnity agreements.

      9.    Notices.

            Except as otherwise provided in this Agreement, (a) whenever notice
is required by the provisions of this Agreement or otherwise to be given to the
Company, or the Managing Member, such notice shall be in writing addressed to
the Company or the Managing Member at 4590 MacArthur Boulevard, Suite 610,
Newport Beach, California 92660, Attention: Terry G. Roussel, (b) whenever
notice is required by the provisions of this Agreement or otherwise to be given
to Dealer Manager, such notice shall be in writing addressed to Dealer Manager
at 4590 MacArthur Blvd., Suite 610, Newport Beach, California 92660, and (c)
whenever notice is required by the provisions of this Agreement or otherwise to
be given to you, at the address set forth on the last page of this Agreement.
Any notice referred to herein may be given in writing or by facsimile or
telephone and if by telephone shall be immediately confirmed in writing. Notice
(unless actual) shall be effective upon mailing or facsimile transmission with
confirmation of receipt, as the case may be.

      10.   Persons Entitled To Benefit of Agreement.

            Except as provided in the next sentence, this Agreement is made
solely for the benefit of you, the other Participating Brokers, Dealer Manager,
the Company or controlling persons thereof, and their respective successors and
assigns, and no other person shall acquire or have any right by virtue of this
Agreement, and the term "successors and assigns," as used in this Agreement,
shall not include any purchaser, as such purchaser, of any of the Shares. The
agreements of the Company specified in Section 6(a) are also made for the
benefit of the purchasers of the Shares and such purchasers and their successors
and assigns shall be entitled to the indemnification therein provided.

                                       9


      11.   Not a Separate Entity.

            Nothing contained herein shall constitute you, Dealer Manager or the
other Participating Brokers, or any of them, as an association, partnership,
unincorporated business or other separate entity.

            Please confirm your agreement to become a Participating Broker under
the terms and conditions herein set forth by signing and returning the enclosed
duplicate copy of this Agreement at once to Dealer Manager at 4590 MacArthur
Blvd., Suite 610, Newport Beach, California 92660.

                                          Very truly yours,

                                          PACIFIC CORNERSTONE CAPITAL,
                                          INCORPORATED, a California corporation


                                          By:
                                             -----------------------------------
                                                  Terry G. Roussel, President


AGREED AND ACCEPTED:

[NAME OF PARTICIPATING BROKER]
[ADDRESS OF PARTICIPATING BROKER]


By:
   -------------------------------------------

Dated___________, 200__

CORNERSTONE CORE PROPERTIES REIT, INC.
a Maryland corporation

By:
   -------------------------------------------
         Terry G. Roussel, President

                                       10

EX-3.2

                                                                     Exhibit 3.2

                     CORNERSTONE CORE PROPERTIES REIT, INC.

                                      FORM

                                       OF

                      ARTICLES OF AMENDMENT AND RESTATEMENT

                                       OF

                            ARTICLES OF INCORPORATION



                                TABLE OF CONTENTS



                                                                                                                     PAGE
                                                                                                                     ----
                                                                                                                  
ARTICLE 1         THE COMPANY; DEFINITIONS.......................................................................      1
         Section 1.1       Name..................................................................................      1
         Section 1.2       Resident Agent........................................................................      1
         Section 1.3       Nature of Company.....................................................................      1
         Section 1.4       Principal Office of Company...........................................................      1
         Section 1.5       Purpose...............................................................................      1
         Section 1.6       Definitions...........................................................................      1

ARTICLE 2         BOARD OF DIRECTORS.............................................................................      9
         Section 2.1       Number................................................................................      9
         Section 2.2       Experience............................................................................     10
         Section 2.3       Committees............................................................................     10
         Section 2.4       Term..................................................................................     10
         Section 2.5       Fiduciary Obligations.................................................................     10
         Section 2.6       Ratification of Charter...............................................................     10
         Section 2.7       Resignation, Removal or Death.........................................................     10

ARTICLE 3         POWERS OF DIRECTORS............................................................................     10
         Section 3.1       General...............................................................................     10
         Section 3.2       Determinations by the Board...........................................................     10
         Section 3.3       Specific Powers and Authority.........................................................     11

ARTICLE 4         ADVISOR........................................................................................     14
         Section 4.1       Appointment and Initial Investment of Advisor.........................................     14
         Section 4.2       Supervision of Advisor................................................................     14
         Section 4.3       Fiduciary Obligations.................................................................     15
         Section 4.4       Affiliation and Functions.............................................................     15
         Section 4.5       Payment of Fees and Reimbursement of Expenses.........................................     15
         Section 4.6       New Advisor Fee Structures............................................................     15
         Section 4.7       Termination...........................................................................     15
         Section 4.8       Advisor Stock Purchase................................................................     16
         Section 4.9       Reimbursement for Organizational and Offering Expenses................................     16
         Section 4.10      Dealer Manager Fee and Commissions....................................................     16
         Section 4.11      Advisor Acquisition Fees..............................................................     16
         Section 4.12      Reimbursement for Acquisition Expenses................................................     16
         Section 4.13      Asset Management Fee..................................................................     16
         Section 4.14      Reimbursement for Operating Expenses..................................................     16
         Section 4.15      Property Management and Leasing Fees..................................................     16
         Section 4.16      Disposition Fees......................................................................     17
         Section 4.17      Subordinated Share of Net Sale Proceeds...............................................     17
         Section 4.18      Subordinated Incentive Fee Due Upon Listing...........................................     17
         Section 4.19      Fees Upon Termination of Advisory Agreement...........................................     17

ARTICLE 5         PROVISIONS FOR DEFINING, LIMITING AND REGULATING
                  CERTAIN POWERS OF THE COMPANY AND ITS DIRECTORS
                  AND STOCKHOLDERS...............................................................................     17
         Section 5.1       Limitation on Organization and Offering Expenses......................................     17
         Section 5.2       Limitation on Acquisition Fees and Acquisition Expenses...............................     17
         Section 5.3       Limitation on Operating Expenses......................................................     17
         Section 5.4       Limitation on Real Estate Commissions.................................................     18
         Section 5.5       Limitation on Transactions with Affiliates............................................     18
         Section 5.6       Limitation of Issuance of Securities..................................................     18
         Section 5.7       Limitation on Borrowing...............................................................     19


                                      (i)



                                                                                                                   
ARTICLE 6         INVESTMENT OBJECTIVES AND LIMITATIONS..........................................................     19
         Section 6.1       Investment Objectives.................................................................     19
         Section 6.2       Review of Objectives..................................................................     20
         Section 6.3       Certain Permitted Investments.........................................................     20
         Section 6.4       Investment Limitations................................................................     20

ARTICLE 7         CONFLICTS OF INTEREST RESOLUTION PROCEDURES....................................................     21
         Section 7.1       Independent Directors Committee.......................................................     21
         Section 7.2       Voting by Independent Directors Committee.............................................     21
         Section 7.3       Meetings of Independent Directors Committee...........................................     22
         Section 7.4       Conflict Resolution Procedures........................................................     22
         Section 7.5       Compliance with Code Requirements.....................................................     22

ARTICLE 8         STOCK..........................................................................................     22
         Section 8.1       Authorized Stock......................................................................     22
         Section 8.2       Common Stock..........................................................................     22
         Section 8.3       Preferred Stock.......................................................................     23
         Section 8.4       Preemptive and Appraisal Rights.......................................................     24
         Section 8.5       No Issuance of Share Certificates.....................................................     25
         Section 8.6       Suitability of Stockholders...........................................................     25
         Section 8.7       Repurchase of Shares..................................................................     25
         Section 8.8       Dividend Reinvestment Plans...........................................................     26
         Section 8.9       Charter and Bylaws....................................................................     26

ARTICLE 9         RESTRICTIONS ON OWNERSHIP AND TRANSFER OF STOCK................................................     26
         Section 9.1       Definitions...........................................................................     26
         Section 9.2       Ownership and Transfer Limitations....................................................     28
         Section 9.3       Transfer of Shares to Trust...........................................................     29
         Section 9.4       Remedies for Breach...................................................................     29
         Section 9.5       Notice of Restricted Transfer.........................................................     30
         Section 9.6       Owners Required to Provide Information................................................     30
         Section 9.7       Remedies Not Limited..................................................................     30
         Section 9.8       Ambiguity.............................................................................     30
         Section 9.9       Waivers by Board......................................................................     30
         Section 9.10      Increase and Decrease in Common or Preferred Stock Ownership Limit....................     31
         Section 9.11      Limitation on Modifications...........................................................     31
         Section 9.12      Notice to Stockholders Upon Issuance or Transfer......................................     31
         Section 9.13      Stock-In-Trust........................................................................     32
         Section 9.14      Remedies Not Limited..................................................................     33
         Section 9.15      Settlements...........................................................................     34
         Section 9.16      Severability..........................................................................     34
         Section 9.17      Waiver................................................................................     34

ARTICLE 10        STOCKHOLDERS...................................................................................     34
         Section 10.1      Meetings of Stockholders..............................................................     34
         Section 10.2      Voting Rights of Stockholders.........................................................     34
         Section 10.3      Voting Limitations on Stock Held by the Advisor, Directors and Affiliates.............     34
         Section 10.4      Right of Inspection...................................................................     35
         Section 10.5      Access To Stockholder List............................................................     35
         Section 10.6      Reports...............................................................................     35

ARTICLE 11        LIABILITY OF STOCKHOLDERS, DIRECTORS, ADVISORS AND AFFILIATES..................................     36
         Section 11.1      Limitation of Stockholder Liability...................................................     36
         Section 11.2      Limitation of Director and Officer Liability..........................................     36
         Section 11.3      Indemnification.......................................................................     36
         Section 11.4      Limitation on Indemnification.........................................................     36
         Section 11.5      Limitation on Payment of Expenses.....................................................     37



                                      (ii)



                                                                                                                   
ARTICLE 12        AMENDMENT; REORGANIZATION; MERGER, ROLL-UP TRANSACTIONS........................................     37
         Section 12.1      Amendment.............................................................................     37
         Section 12.2      Reorganization........................................................................     37
         Section 12.3      Merger, Consolidation or Sale of Property.............................................     37
         Section 12.4      Limitations on Roll-Up Transactions...................................................     38

ARTICLE 13        DURATION OF COMPANY............................................................................     38



                                     (iii)



                     CORNERSTONE CORE PROPERTIES REIT, INC.

                                     FORM OF
                              ARTICLES OF AMENDMENT
                               AND RESTATEMENT OF
                            ARTICLES OF INCORPORATION
                              Core Properties REIT

         FIRST: Cornerstone Core Properties REIT, Inc., a Maryland corporation,
desires to amend and restate its charter as currently in effect and as
hereinafter amended.

         SECOND: The following provisions are all the provisions of the charter
currently in effect and as hereinafter amended:

                                    ARTICLE 1
                            THE COMPANY; DEFINITIONS

         Section 1.1 Name. The name of the corporation (the "Company") is:
Cornerstone Core Properties REIT, Inc.

         Section 1.2 Resident Agent. The name and address of the resident agent
for service of process of the Company in the State of Maryland is The
Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland
21202. The Registered Agent is a Maryland corporation.

         Section 1.3 Nature of Company. The Company is a Maryland corporation
within the meaning of the Maryland General Corporation Law.

         Section 1.4 Principal Office of Company. The address of the Company's
principal office in the State of Maryland is c/o The Corporation Trust
Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202.

         Section 1.5 Purpose. The purposes for which the Company is formed are
to engage in any lawful act or activity (including, without limitation or
obligation, qualifying as a real estate investment trust under Sections 856
through 860, or any successor sections, of the Internal Revenue Code of 1986, as
amended (the "Code")), for which corporations may be organized under the MGCL
and the general laws of the State of Maryland as now or hereafter in force.

         Section 1.6 Definitions. As used in the Charter, the following terms
shall have the following meanings unless the context otherwise requires (certain
other terms used in Article 9 hereof):

         Acquire is defined in Section 9.1.

         Acquisition Expenses means expenses related to the Company's sourcing,
selection, evaluation and acquisition of, and investment in, Properties, whether
or not acquired or made, including but not limited to legal fees and expenses,
travel and communications expenses, costs of financial analysis, appraisals and
surveys, nonrefundable option payments on Property not acquired, accounting fees
and expenses, computer use-related expenses, architectural and engineering
reports, environmental reports, title insurance and escrow fees, and personnel
and other direct expenses related to the selection and acquisition of
Properties.

         Acquisition Fee means any and all fees and commissions, exclusive of
Acquisition Expenses, paid by any Person to any other Person (including any fees
or commissions paid by or to any Affiliate of the Company or the Advisor) in
connection with the making or investing in mortgage loans or the purchase,
development or construction of a Property, including, without limitation, real
estate commissions, acquisition fees, finder's fees, selection fees, Development
Fees and Construction Fees (except as provided in the following sentence),
nonrecurring management fees, consulting fees, loan fees, points, or any other
fees or commissions of a similar nature. Excluded shall be any commissions or
fees incurred in connection with the leasing of any Property, and Development
Fees or Construction Fees paid to any Person or entity not affiliated with the
Advisor in connection with the actual development and construction of any
Property.



         Advisor means the Person responsible for directing or performing the
day-to-day business affairs of the Company, including a Person to which an
Advisor subcontracts substantially, all such functions. The Advisor is
Cornerstone Realty Advisors, LLC or any Person which succeeds it in such
capacity.

         Advisory Agreement means the agreement between the Company and the
Advisor pursuant to which the Advisor will direct or perform the day-to-day
business affairs of the Company, as it may be amended or restated from time to
time.

         Affiliate or Affiliated means, as to any individual, corporation,
partnership, trust, limited liability company or other legal entity (other than
the Company), (i) any Person or entity directly or indirectly through one or
more intermediaries controlling, controlled by, or under common control with
another Person or entity; (ii) any Person or entity, directly or indirectly
owning, controlling, or holding with power to vote ten percent (10%) or more of
the outstanding voting Securities of another Person or entity; (iii) any
officer, director, general partner or trustee of such Person or entity; (iv) any
Person ten percent (10%) or more of whose outstanding voting Securities are
directly or indirectly owned, controlled or held, with power to vote, by such
other Person; and (v) if such other Person or entity is an officer, director,
general partner, or trustee of a Person or entity, the Person or entity for
which such Person or entity acts in any such capacity.

         AMEX means the American Stock Exchange.

         Appraised Value means value according to an appraisal made by an
Independent Appraiser.

         Asset Management Fee means the fee paid to the Advisor for directing or
performing the day-to-day business affairs of the Company in the amount
established pursuant to Section 9(b) of the Advisory Agreement.

         Assets means any and all GAAP assets including but not limited to all
real estate investments (real, personal or otherwise), tangible or intangible,
owned or held by, or for the account of, the Company, whether directly or
indirectly through another entity or entities, including interests in any Person
or in Joint Ventures which directly or indirectly own real estate.

         Average Invested Assets means, for a specified period, the average of
the aggregate GAAP basis book carrying values of the assets of the Company
invested, directly or indirectly, in equity interests in and loans secured by
real estate before reserves for depreciation or bad debts or other similar
non-cash reserves, computed by taking the average of such values at the end of
each month during such period.

         Beneficial Ownership is defined in Section 9.1.

         Beneficiary is defined in Section 9.1

         Business Day shall mean any day, other than a Saturday or Sunday, that
is neither a legal holiday nor a day on which banking institutions in New York
City are authorized or required by law, regulation or executive order to close.

         Board of Directors or Board means the individuals holding such office,
as of any particular time, under the Articles of Incorporation of the Company,
whether they be the Directors named therein or additional or successor
Directors.

         Bylaws means the Bylaws of the Company, as the same may be amended from
time to time.

         Cash from Financings means the net cash proceeds realized by the
Company from the financing of Property or from the refinancing of any Company
indebtedness.

         Cash from Sales means the net cash proceeds realized by the Company
from the sale, exchange or other disposition of any of its Assets after
deduction of all expenses incurred in connection therewith. Cash from Sales
shall not include Cash from Financings.

                                       2


         Cash from Sales and Financings means Cash from Sales plus Cash from
Financings.

         Charter means the charter of the Company, including the Articles of
Incorporation and all Articles of Amendment, Articles Supplementary and other
modifications thereto as filed with the State Department of Assessments and
Taxation of the State of Maryland (the "SDAT").

         Code means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute thereto. Reference to any provision of the Code
shall mean such provision as in effect from time to time, as the same may be
amended, and any successor provision thereto, as interpreted by any applicable
regulations as in effect from time to time.

         Common Stock means shares of the Company's common stock, $.001 par
value per share, the terms and conditions of which are set forth in Section 8.2
hereof.

         Common Stockholders. The holders of record of Common Stock.

         Common Stock Ownership Limit is defined in Section 9.1.

         Company means Cornerstone Core Properties REIT, Inc., a corporation
organized under the laws of the State of Maryland.

         Competitive Real Estate Commission. A real estate or brokerage
commission paid for the purchase or sale of a Property that is reasonable,
customary and competitive in light of the size, type and location of the
Property.

         Constructive Ownership Equity is defined in Section 9.1.

         Construction Fee means a fee or other remuneration for acting as
general contractor and/or construction manager to construct, supervise or
coordinate leasehold or other improvements or projects, or to provide major
repairs or rehabilitation for a Property.

         Contract Purchase Price means the amount actually paid or allocated in
respect of the purchase, development, construction or improvement of a property
exclusive of Acquisition Fees and Acquisition Expenses.

         Dealer Manager means Pacific Cornerstone Capital, Inc., an Affiliate of
the Advisor, or such other Person or entity selected by the Board of Directors
to act as the dealer manager for the offering of the Stock. Pacific Cornerstone
Capital, Inc. is a member of the National Association of Securities Dealers,
Inc.

         Development Fee means a fee for the packaging of a Property, including
negotiating and approving plans, and undertaking to assist in obtaining zoning
and necessary variances and financing for the specific Property, either
initially or at a later date.

         Director means an individual who is a member of the Board of Directors.


         Disposition Fee means the Disposition Fee as defined in Section 9(d) of
the Advisory Agreement.



         Dividends means any dividends or other distributions of money or other
property paid by the Company to the holders of Common Stock or Preferred Stock,
including dividends that may constitute a return of capital for federal income
tax purposes.


         Excess Expense Guidelines is defined in Section 10(c)(iii) of the
Advisory Agreement.

         Excess Market Value means the amount by which (i) the market value of
the outstanding Stock, measured by taking the average closing price or average
of bid and asked price, as the case may be, during the consecutive 30-day period
commencing twelve (12) months following Listing and ending eighteen (18) months
following Listing during which the average closing price or average of bid and
asked price of the Stock is the highest (the "Market

                                       3


Value"), plus the total of all Dividends (other than the Special 10% Stock
Dividend) and other distributions paid to Stockholders from the Company's
inception until the date that Market Value is determined, exceeds (ii) an amount
equal to 100% of the Invested Capital, plus an amount equal to the Stockholders'
10% Return, Stockholders' 8% Return or Stockholders 6% Return, as the case may
be, from the date of investment through the date Market Value is determined.






         FFO means funds from operations which is net income, calculated in
accordance with GAAP, excluding gains (or losses) from dispositions of real
estate held for investment purposes and real estate-related depreciation, plus
the Company's pro rata share of funds from operations of consolidated and
unconsolidated joint ventures.


         GAAP means generally accepted accounting principles consistently
applied as used in the United States.

         Gross Proceeds means the aggregate purchase price of all Stock sold for
the account of the Company, including Stock sold pursuant to the Reinvestment
Plan, without deduction for Sales Commissions, volume discounts, fees paid to
the Dealer Manager or other Organization and Offering Expenses. Gross Proceeds
does not include Stock issued in exchange for OP Units.

         Independent Appraiser means a person or entity, who is not an Affiliate
of the Advisor or the Directors, who is engaged to a substantial extent in the
business of rendering opinions regarding the value of assets of the type held by
the Company, and who is a qualified appraiser of real estate as determined by
the Board. Membership in a nationally recognized appraisal society such as the
American Institute of Real Estate Appraisers or the Society of Real Estate
Appraisers shall be conclusive evidence of such qualification.

         Independent Director means a Director who is not, and within the last
two (2) years has not been, directly or indirectly associated with the Advisor
by virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) performance of services, other
than as a Director, for the Company, (v) service as a director or trustee of
more than three (3) real estate investment trusts advised by the Advisor, or
(vi) maintenance of a material business or professional relationship with the
Advisor or any of its Affiliates. An indirect relationship shall include
circumstances in which a Director's spouse, parents, children, siblings,
mothers- or fathers-in-law, sons- or daughters-in-law or brothers- or
sisters-in-law are or have been associated with the Advisor, any of its
Affiliates or the Company. A business or professional relationship is considered
material if the gross revenue derived by the Director from the Advisor and
Affiliates exceeds five percent (5%) of either the Director's annual gross
revenue during either of the last two (2) years or the Director's net worth on a
fair market value basis.

         Initial Public Offering means the offering and sale of Common Stock of
the Company pursuant to the Company's first effective registration statement
covering such Common Stock filed under the Securities Act of 1933, as amended.


     Invested Capital means the amount calculated by multiplying the total
number of shares of Common Stock purchased by Stockholders by (i) the Offering
Price for the Stock or (ii) for Stock not purchased in an Offering, the issue
price for the Stock; in each case reduced by any Dividends or distributions
other than Stock Dividends which represent a return of capital and any amounts
paid by the Company to repurchase shares of Stock pursuant to a plan for
repurchase of the Company's Stock.


         Joint Venture or Joint Ventures means those joint venture or general
partnership arrangements in which the Company or the Operating Partnership is a
co-venturer or general partner which are established to acquire Properties.

         Leasing Agent means an entity that has been retained to perform and
carry out leasing activities for one or more of the Properties.

                                       4

         Listed means approved for trading on the NYSE, AMEX or Nasdaq/NMS, any
successor to such entities or on any national securities exchange that has
listing standards that the Securities and Exchange Commission determines by rule
are substantially similar to the listing standards of the NYSE, AMEX or
Nasdaq/NMS. The term "Listing" shall have the correlative meaning. Market Price
is defined in Section 9.1.

         MGCL. The Maryland General Corporation Law, as amended from time to
time.

         Mortgage means mortgages, deeds of trust or other security interests on
or applicable to real property.

         Nasdaq/NMS. National Market System of the Nasdaq Stock Market.

         NASAA means the North American Securities Administrators Association,
Inc.


         NASAA Net Income means for any period, the total revenues applicable to
such period, less the total expenses applicable to such period excluding
additions to reserves for depreciation, bad debts or other similar non-cash
reserves; provided, however, NASAA Net Income for purposes of calculating total
allowable Operating Expenses shall exclude the gain or loss from the sale of the
Company's Assets.


         NASAA REIT Guidelines means the Statement of Policy Regarding Real
Estate Investment Trusts published by the North American Securities
Administrators Association.


         Net Appraised Value means the Appraised Value of the Company's Assets
at the Termination Date, less amounts of all indebtedness of the Company.


         Net Asset Value means the total Assets including intangible assets
relating to SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and
Other Intangible Assets (but not including other GAAP intangibles) at cost
before deducting depreciation or other non-cash reserves less total liabilities,
calculated at least quarterly on a basis consistently applied.

         Net Income means net income as calculated in accordance with GAAP.

         Net Sale Proceeds means in the case of a transaction described in
clause (A) of the definition of Sale, the net proceeds of any such transaction
less the amount of all real estate commissions and closing costs paid by the
Operating Partnership. In the case of a transaction described in clause (B) of
such definition, Net Sale Proceeds means the net proceeds of any such
transaction less the amount of any legal and other selling expenses incurred by
the Operating Partnership in connection with such transaction. In the case of a
transaction described in clause (C) of such definition, Net Sale Proceeds means
the net proceeds of any such transaction actually distributed to the Operating
Partnership from the Joint Venture less any expenses incurred by the Operating
Partnership in connection with such transaction. In the case of a transaction or
series of transactions described in clause (D) of the definition of Sale, Net
Sale Proceeds means the net proceeds of any such transaction less the amount of
all commissions and closing costs paid by the Operating Partnership. In the case
of a transaction described in clause (E) of such definition, Net Sale Proceeds
means the net proceeds of any such transaction less the amount of all selling
costs and other expenses incurred by the Operating Partnership in connection
with such transaction. Net Sale Proceeds shall also include, in the case of any
lease of a Property consisting of a building only, any amounts from tenants,
borrowers or lessees that the Company, as general partner of the Operating
Partnership determines, in its discretion, to be economically equivalent to the
proceeds of a Sale. Net Sale Proceeds shall not include any amounts used to
repay outstanding indebtedness secured by the asset disposed of in the sale.

         NYSE means the New York Stock Exchange.

         Offering means an offering of Stock that is registered with the U.S.
Securities and Exchange Commission, excluding Stock offered under any employee
benefit plan.

         Offering Price means, with respect to each share of Stock, the highest
price at which such Stock was offered by the Company in the Offering pursuant to
which such Stock was issued, without regard to any price reductions for certain
types of purchasers or volume discounts.

                                       5


         Operating Expenses means all direct and indirect costs and expenses
incurred by the Company, as determined under generally accepted accounting
principles, which in any way are related to the operation of the Company or to
Company business, including advisory fees, but excluding (i) the expenses of
raising capital such as Organizational and Offering Expenses, legal, audit,
accounting, underwriting, brokerage, listing, registration, and other fees,
printing and other such expenses and taxes incurred in connection with the
issuance, distribution, transfer, registration and Listing of the Stock, (ii)
interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves, (v) Acquisition Fees and Acquisition
Expenses, (vi) real estate commissions on the Sale of property, and other
expenses connected with the acquisition and ownership of real estate interests,
mortgage loans, or other property (such as the costs of foreclosure, insurance
premiums, legal services, maintenance, repair, and improvement of property) and
(vii) any incentive fees which may be paid in compliance with the NASAA REIT
Guidelines. The definition of "Operating Expenses" set forth above is intended
to encompass only those expenses which are required to be treated as Operating
Expenses under the NASAA REIT guidelines. As a result, and notwithstanding the
definition set forth above, any expense of the Company which is not an Operating
Expense under the NASAA REIT Guidelines shall not be treated as an Operating
Expense for purposes hereof.

         Operating Partnership means Cornerstone Operating Partnership, L.P.
which is the partnership through which the Company may own Properties.

         Operating Partnership Agreement means the Limited Partnership Agreement
of the Operating Partnership, as amended and restated from time to time.

         OP Unit means a unit of limited partnership interest in the Operating
Partnership.

         Organizational and Offering Expenses means any and all costs and
expenses incurred by the Company, the Advisor or any Affiliate of either in
connection with and in preparing the Company for registration of and
subsequently offering and distributing its Stock to the public, which may
include but are not limited to total underwriting and brokerage discounts and
commissions (including fees of the underwriters' attorneys), legal, accounting
and escrow fees, expenses for printing, engraving, amending, supplementing and
mailing, distribution costs, compensation to employees while engaged in
registering, marketing and wholesaling the Stock, telegraph and telephone costs,
all advertising and marketing expenses (including the costs related to investor
and broker-dealer sales meetings), charges of transfer agents, registrars,
trustees, escrow holders, depositories, experts, and fees, expenses and taxes
related to the filing, registration and qualification of the sale of the
Securities under Federal and State laws, including accountants' and attorneys'
fees and other accountable offering expenses. Organization and Offering Expenses
may include, but are not limited to: (i) amounts to reimburse the Advisor for
all marketing related costs and expenses such as compensation to and direct
expenses of the Advisor's employees or employees of the Advisor's Affiliates in
connection with registering and marketing the Stock; (ii) compensation to and
direct expenses of employees of the Dealer Manager while preparing for the
offering and marketing of the Stock and in connection with their wholesaling
activities but not Sales Commissions; (iii) travel and entertainment expenses
related to the offering and marketing of the Stock; (iv) facilities and
technology costs and other costs and expenses associated with the offering and
to facilitate the marketing of the Stock including Web site design and
management; (v) costs and expenses of conducting training and educational
conferences and seminars; (vi) costs and expenses of attending broker-dealer
sponsored retail seminars or conferences; and (vii) payment or reimbursement of
bona fide due diligence expenses.

         Ownership Limit is defined in Section 9.1.

         Person shall mean any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.

         Preferred Stock means shares of the Company's preferred stock, $.001
par value per share, which may be issued in one or more classes or series in
accordance with Section 8.3 hereof.

         Preferred Stock Ownership Limit is defined in Section 9.1.

         Property or Properties means the real properties or real estate
investments which are acquired by the Company either directly or through the
Operating Partnership, Joint Ventures, partnerships or other entities.

                                       6


         Property Manager means any entity that has been retained to perform and
carry out at one or more of the Properties property management services.

         Prospectus means any document, notice, or other communication
satisfying the standards set forth in Section 10 of the Securities Act of 1933,
as amended, and contained in a currently effective registration statement filed
by the Company with, and declared effective by, the Securities and Exchange
Commission, or if no registration statement is currently effective, then the
Prospectus contained in the most recently effective registration statement.

         Purported Beneficial Holder is defined in Section 9.1.

         Purported Beneficial Transferee is defined in Section 9.1.

         Purported Record Holder is defined in Section 9.1.

         Purported Record Transferee is defined in Section 9.1.

         REIT means a corporation, trust or association which is engaged in
investing in equity interests in real estate (including fee ownership and
leasehold interests and interests in partnerships and Joint Ventures holding
real estate) or in loans secured by mortgages on real estate or both and that
qualifies as a real estate investment trust under the REIT Provisions of the
Code.

         REIT Provisions of the Code means Sections 856 through 860 of the Code
and any successor or other provisions of the Code relating to real estate
investment trusts (including provisions as to the attribution of ownership of
beneficial interests therein) and the regulations promulgated thereunder.

         REIT Stock Amount has the meaning set forth in the Operating
Partnership Agreement.

         Reinvestment Plan is defined in Section 8.8.

         Restriction Termination Date is defined in Section 9.1.

         Roll-Up Entity means a partnership, real estate investment trust,
corporation, trust or similar entity that would be created or would survive
after the successful completion of a proposed Roll-Up Transaction.

         Roll-Up Transaction means a transaction involving the acquisition,
merger, conversion, or consolidation, directly or indirectly, of the Company and
the issuance of securities of a Roll-Up Entity. Such term does not include: (i)
a transaction involving securities of the Company that have been listed on a
national securities exchange or included for quotation on the Nasdaq/NMS for at
least 12 months; or (ii) a transaction involving the conversion to corporate,
trust, or association form of only the Company if, as a consequence of the
transaction, there will be no significant adverse change in Stockholder voting
rights, the term of existence of the Company, compensation to the Advisor or the
investment objectives of the Company.

         Sale or Sales means any transaction or series of transactions whereby:
(A) the Operating Partnership sells, grants, transfers, conveys or relinquishes
its ownership of any Property or portion thereof, including the lease of any
Property consisting of the building only, and including any event with respect
to any Property which gives rise to a significant amount of insurance proceeds
or condemnation awards; (B) the Operating Partnership sells, grants, transfers,
conveys or relinquishes its ownership of all or substantially all of the
interest of the Operating Partnership in any Joint Venture in which it is a
co-venturer or partner; (C) any Joint Venture in which the Operating Partnership
is a co-venturer or partner sells, grants, transfers, conveys or relinquishes
its ownership of any Property or portion thereof, including any event with
respect to any Property which gives rise to insurance claims or condemnation
awards; (D) the Operating Partnership sells, grants, conveys, or relinquishes
its interest in any asset, or portion thereof, including any event with respect
to any asset which gives rise to a significant amount of insurance proceeds or
similar awards; or (E) the Operating Partnership sells or otherwise disposes of
or distributes all of its assets in liquidation of the Operating Partnership.

         Sales Commissions means any and all commissions payable to
underwriters, dealer managers or other broker-dealers in connection with the
sale of Stock, including, without limitation, commissions payable to the Dealer
Manager.

                                       7


         Securities means any class or series of units or shares of the Company
or the General Partner, including common shares or preferred units or shares and
any other evidences of equity or beneficial or other interests, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "Securities" or any certificates of interest,
shares or participations in, temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.

         Securities Act means the Securities Act of 1933, as amended.

         Soliciting Dealers means those broker-dealers that are members of the
National Association of Securities Dealers, Inc., or that are exempt from
broker-dealer registration, and that, in either case, enter into participating
broker or other selling agreements with the Dealer Manager to sell shares of
Stock.


         Special 10% Stock Dividend means the 10% stock dividend authorized by
the Board of Directors to be paid to the Stockholders of record on the date that
the Company raises the first $125,000,000 in the Initial Public Offering.


         Sponsor means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Company or any Person who will control,
manage or participate in the management of the Company, and any Affiliate of
such Person. Not included is any Person whose only relationship with the Company
is as that of an independent Leasing Agent or Property Manager of the Company's
assets and whose only compensation is as such. Sponsor does not include wholly
independent third parties such as attorneys, accountants and underwriters whose
only compensation is for professional services. A Person may also be deemed a
Sponsor of the Company (as determined by a majority of the Directors, including
a majority of the Independent Directors) by:

                  (a) taking the initiative, directly or indirectly, in founding
or organizing the business or enterprise of the Company, either alone or in
conjunction with one or more other Persons;

                  (b) receiving a material participation in the Company in
connection with the founding or organizing of the business of the Company, in
consideration of services or property, or both services and property;

                  (c) having a substantial number of relationships and contacts
with the Company;

                  (d) possessing significant rights to control the Company's
properties;

                  (e) receiving fees for providing services to the Company which
are paid on a basis that is not customary in the industry; or

                  (f) providing goods or services to the Company on a basis
which was not negotiated at arms length with the Company.

         Stock means shares of stock of the Company of any class or series,
including Common Stock, Preferred Stock or Stock-in-Trust.

         Stock-in-Trust is defined in Section 9.1.

         Stockholders means the holders of record of Stock.


         Stockholders' 10% Return means, as of any date, an aggregate amount
equal to a 10% cumulative, non-compounded, annual return on Invested Capital;
provided, however, that for purposes of calculating the Stockholders' 10%
Return, any stock dividend shall not be included as a Dividend; and provided
further that for purposes of determining the Stockholders' 10% Return, the
return for each portion of the Invested Capital shall commence for purposes of
the calculation upon the issuance of the shares issued in connection with such
capital.



         Stockholders' 8% Return means, as of any date, an aggregate amount
equal to a 8% cumulative, non-compounded, annual return on Invested Capital;
provided, however, that for purposes of calculating the Stockholders' 8% Return,
any stock dividend shall not be included as a Dividend; and provided further
that for purposes of determining the Stockholders' 8% Return, the return for
each portion of the Invested Capital shall commence for purposes of the
calculation upon the issuance of the shares issued in connection with such
capital.



         Stockholders' 6% Return means, as of any date, an aggregate amount
equal to a 6% cumulative, non-compounded, annual return on Invested Capital;
provided, however, that for purposes of calculating the Stockholders' 6% Return,
any stock dividend shall not be included as a Dividend; and provided further
that for purposes of determining the Stockholders' 6% Return, the return



                                       8


for each portion of the Invested Capital shall commence for purposes of the
calculation upon the issuance of the shares issued in connection with such
capital.



         Subordinated Incentive Fee Due Upon Listing means the fee payable to
the Advisor under certain circumstances if the Common Stock is listed on a
national securities exchange, or traded on the Nasdaq/NMS in an amount equal to
the percentage below of the Excess Market Value.



         (a)   If (i) the Excess Market Value exceeds (ii) the sum of the
aggregate Invested Capital plus the Stockholders' 10% Return, a fee equal to the
product of 0.15 times such excess amount.



         (b)   If the requirements of paragraph (a) above are not met, and (i)
the Excess Market Value exceeds (ii) the sum of the aggregate Invested Capital
plus the Stockholders' 8% Return, a fee equal to the product of 0.10 times such
excess.



         (c)   If the requirements of paragraphs (a) and (b) above are not met,
and (i) the Excess Market Value exceeds (ii) the sum of the aggregate Invested
Capital plus the Stockholders' 6% Return, a fee equal to the product of 0.05
times such excess.



         The Company shall have the option to pay such fee in the form of cash,
Stock, a promissory note or any combination of the foregoing. The form of
payment shall be as approved by the Board of Directors. In the event the Advisor
Subordinated Incentive Fee Due Upon Listing is paid to the Advisor, thereafter,
the Advisor will not be entitled to receive any payments of Subordinated
Performance Fee Due Upon Termination or Subordinated Share of Net Sale Proceeds.



         Subordinated Performance Fee Due Upon Termination means:



         (a)   If (i) the sum of the Net Appraised Value plus the total
Dividends paid to Stockholders through the Termination Date exceeds (ii) the sum
of the aggregate Invested Capital plus the Stockholders' 10% Return through the
Termination Date, a fee equal to the product of 0.15 times such excess amount.



         (b)   If the requirements of paragraph (a) above are not met, and (i)
the sum of the Net Appraised Value plus the total Dividends paid to Stockholders
through the Termination Date exceeds (ii) the sum of the aggregate Invested
Capital plus the Stockholders' 8% Return through the Termination Date, a fee
equal to the product of 0.10 times such excess.



         (c)   If the requirements of paragraphs (a) and (b) above are not met,
and (i) the sum of the Net Appraised Value plus the total Dividends paid to
Stockholders through the Termination Date exceeds (ii) the sum of the aggregate
Invested Capital plus the Stockholders' 6% Return through the Termination Date,
a fee equal to the product of 0.05 times such excess.


         Subordinated Share of Net Sale Proceeds means a fee equal to the
percentage set forth below of the balance of Net Sale Proceeds, if any,
remaining after Stockholders have received cumulative Dividends and
distributions equal to 100% of the Invested Capital, plus an amount equal to a
cumulative, non-compounded per annum return on the Invested Capital, calculated
on an aggregate weighted average daily basis. The Subordinated Share of Net Sale
Proceeds will be (i) 5% of remaining Net Sale Proceeds if Stockholders have
received cumulative Dividends and distributions equal to 100% of the Invested
Capital plus a 6% cumulative, non-compounded per annum return on the Invested
Capital, (ii) 10% of remaining Net Sale Proceeds if Stockholders have received
cumulative Dividends and distributions equal to 100% of the Invested Capital
plus an 8% cumulative, non-compounded per annum return on the Invested Capital,
or (iii) 15% of remaining Net Sale Proceeds if Stockholders have received a
cumulative Dividends and distributions equal to 100% of the Invested Capital
plus a 10% cumulative, non-compounded per annum return on the Invested Capital.

         Successor means any successor in interest of the Company.

         Termination Date means the date of termination of the Advisory
Agreement.

         Trading Day is defined in Section 9.1.

         Transfer is defined in Section 9.1.

         Unimproved Real Property. The real property of the Company that has the
following three characteristics:

         (a) such property was not acquired for the purpose of producing rental
or other operating income;

         (b) there is no development or construction in progress on such land;
and

         (c) no development or construction on such land is planned in good
faith to commence on such land within one year.

                                    ARTICLE 2

                               BOARD OF DIRECTORS


          Section 2.1 Number. The number of Directors shall be five (5), each
of whom shall be elected by the Stockholders entitled to vote, except as
otherwise provided herein. The number of Directors may be increased or decreased
from time to time by resolution of the Directors then in office, provided,
however, that the total number of Directors shall be not fewer than three (3)
and not more than fifteen (15), subject to increase or decrease by the
affirmative vote of 80% of the members of the entire Board of Directors. A
majority of the Board of Directors will be Independent Directors, except for a
period of up to 60 days after the death, removal or resignation of an
Independent Director pending the election of such Independent Director's
successor. The remaining Directors will be individuals nominated by the Advisor,
provided that such director nominees are either directors of the Advisor or have
been elected by the board of directors of the Advisor as executive officers of
the Advisor. Any vacancies will be filled by the affirmative vote of a majority
of the remaining Directors, though less than a quorum. The Independent
Directors, by majority vote, shall nominate replacements for vacancies in the
Independent Director positions. No reduction in the number of Directors shall
cause the removal of any Director from office prior to the


                                       9


expiration of his term. For the purposes of voting for Directors, each share of
Stock entitled to vote for the election of Directors may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted, or as may otherwise be required by the MGCL or
other applicable law as in effect from time to time. The names of the directors
who shall act until the first meeting or until their successors are duly elected
and qualify are: Terry G. Roussel, Paul Danchik, Joseph H. Holland, Daniel L.
Johnson, and Lee Powell Stedman.

         Section 2.2 Experience. A Director shall have had at least three (3)
years of relevant experience demonstrating the knowledge and experience required
to successfully acquire and manage the type of assets being acquired by the
Company. At least one of the Independent Directors shall have three (3) years of
relevant real estate experience.

         Section 2.3 Committees. Subject to the MGCL and to the extent allowed
by the REIT Provisions of the Code, the Directors may establish such committees
as they deem appropriate, in their discretion, provided that the majority of the
members of each committee are Independent Directors.

         Section 2.4 Term. Each Director shall hold office for one (1) year,
until the next annual meeting of Stockholders and until his successor shall have
been duly elected and shall have qualified. Directors may be elected to an
unlimited number of successive terms.

         Section 2.5 Fiduciary Obligations. The Directors serve in a fiduciary
capacity to the Company and have a fiduciary duty to the Stockholders of the
Company, including a specific fiduciary duty to supervise the relationship of
the Company with the Advisor.

         Section 2.6 Ratification of Charter. At the first meeting of the Board
of Directors following the date of filing of the Charter, the Charter shall be
reviewed and ratified by majority vote of the Directors (including a majority of
the Independent Directors).

         Section 2.7 Resignation, Removal or Death. Any Director may resign by
written notice to the Board of Directors, effective upon execution and delivery
to the Company of such written notice or upon any future date specified in the
notice. A Director may be removed from office with or without cause only at a
meeting of the Stockholders called for that purpose, by the affirmative vote of
the holders of not less than a majority of the shares of the Stock then
outstanding and entitled to vote, subject to the rights of any of the shares of
Preferred Stock to vote for such Directors. The notice of such meeting shall
indicate that the purpose, or one of the purposes, of such meeting is to
determine if a Director should be removed

                                    ARTICLE 3
                               POWERS OF DIRECTORS

         Section 3.1 General. Subject to the express limitations herein or in
the Bylaws and to the general standard of care required of directors under the
MGCL and other applicable law, (i) the business and affairs of the Company shall
be managed under the direction of the Board of Directors. The Directors shall
monitor the administrative procedures, investment operations and performance of
the Company and the Advisor to assure that the written policies on investments
and borrowing set forth in Articles 3, 5 and 6 hereof are carried out. The
Directors may take any actions that, in their sole judgment and discretion, are
necessary or desirable to conduct the business of the Company. These Articles of
Incorporation shall be construed with a presumption in favor of the grant of
power and authority to the Directors. Any construction of these Articles of
Incorporation or determination made in good faith by the Directors concerning
their powers and authority hereunder shall be conclusive. The enumeration and
definition of particular powers of the Directors included in this Article 3
shall in no way be limited or restricted by reference to or inference from the
terms of this or any other provision of these Articles of Incorporation or
construed or deemed by inference or otherwise in any manner to exclude or limit
the powers conferred upon the Directors under the general laws of the State of
Maryland as now or hereafter in force.

         Section 3.2 Determinations by the Board. The determination as to any of
the following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the Charter shall be final and conclusive and
shall be binding upon the Company and every holder of shares of its Stock: the
amount of the Net Income of the Company for any period and the amount of assets
at any time legally available for the payment of dividends, redemption of its
Stock or the payment of other distributions on its Stock; the amount of paid-in
surplus,

                                       10


Net Asset Value, other surplus, annual or other cash flow, FFO, net profit, Net
Asset Value in excess of capital, undivided profits or excess of profits over
losses on sales of assets; the amount, purpose, time of creation, increase or
decrease, alteration or cancellation of any reserves or charges and the
propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
any interpretation of the terms, preferences, conversion or other rights, voting
powers or rights, restrictions, limitations as to dividends or distributions,
qualifications or terms or conditions of redemption of any class or series of
Stock; the fair value, or any sale, bid or asked price to be applied in
determining the fair value, of any asset owned or held by the Company or any
shares of Stock; the number of shares of stock of any class of the Company; any
matter relating to the acquisition, holding and disposition of any assets by the
Company; or any other matter relating to the business and affairs of the Company
or required or permitted by applicable law, the Charter or Bylaws or otherwise
to be determined by the Board of Directors.

         Section 3.3 Specific Powers and Authority. Subject only to the express
limitations herein, and in addition to all other powers and authority conferred
by these Articles of Incorporation or by law, the Directors, without any vote,
action or consent by the Stockholders, shall have and may exercise, at any time
or times, in the name of the Company or on its behalf the following powers and
authorities:

                  (a) Investments. Subject to Section 3.3(b) and Articles 5 and
6 hereof, to invest in, purchase or otherwise acquire and to hold real, personal
or mixed, tangible or intangible, property of any kind wherever located, or
rights or interests therein or in connection therewith, all without regard to
whether such property, interests or rights are authorized by law for the
investment of funds held by trustees or other fiduciaries, or whether
obligations the Company acquires have a term greater or lesser than the term of
office of the Directors or the possible termination of the Company, for such
consideration as the Directors may deem proper (including cash, property of any
kind or Securities of the Company); provided, however, that the Directors shall
take such actions as they deem necessary and desirable to comply with any
requirements of the MGCL relating to the types of assets held by the Company.

                  (b) REIT Qualification. The Company shall properly make a
timely election to be a REIT and the Board of Directors shall use its
commercially reasonable efforts to cause the Company and its Stockholders to
qualify for U.S. federal income tax treatment in accordance with the REIT
Provisions of the Code with respect to each taxable year of the Company. In
furtherance of the foregoing, the Board of Directors shall use its commercially
reasonable efforts to take such actions as are necessary, and may take such
actions as it deems desirable (in its sole discretion) to preserve the status of
the Company as a REIT; provided, however, that in the event that the Board of
Directors determines, by vote of at least two-thirds (2/3) of the Directors,
that it no longer is in the best interests of the Company to qualify as a REIT,
the Board of Directors may revoke or otherwise terminate the Company's REIT
election pursuant to Section 856(g) of the Code.

                  (c) Sale, Disposition and Use of Property. Subject to Articles
5 and 6 and Sections 3.3(b) and 12.3 hereof, the Board of Directors shall have
the authority to sell, rent, lease, hire, exchange, release, partition, assign,
mortgage, grant security interests in, encumber, negotiate, dedicate, grant
easements in and options with respect to, convey, transfer (including transfers
to entities wholly or partially owned by the Company) or otherwise dispose of
any or all of the Property by deeds (including deeds in lieu of foreclosure with
or without consideration), trust deeds, assignments, bills of sale, transfers,
leases, mortgages, financing statements, security agreements and other
instruments for any of such purposes executed and delivered for and on behalf of
the Company by one or more of the duly authorized Directors or by a duly
authorized officer, employee, agent or nominee of the Company, on such terms as
they deem appropriate; to give consents and make contracts relating to the
Property and its use or other property or matters; to develop, improve, manage,
use, alter or otherwise deal with the Property; and to rent, lease or hire from
others property of any kind; provided, however, that the Company may not use or
apply land for any purposes not permitted by applicable law.

                  (d) Borrowing and Financing. To borrow or, in any other
manner, raise money for the purposes and on the terms they determine, which
terms may (i) include evidencing the same by issuance of Securities of the
Company and (ii) have such provisions as the Directors determine; to reacquire
such Securities of the Company; to enter into other contracts or obligations on
behalf of the Company; to guarantee, indemnify or act as surety with respect to
payment or performance of obligations of any Person; to mortgage, pledge,
assign, grant security interests in or otherwise encumber the Property to secure
any such Securities of the Company, contracts or obligations (including
guarantees, indemnifications and suretyships); and to renew, modify, release,
compromise, extend, consolidate or cancel, in whole or in part, any obligation
to or of the Company or participate in any

                                       11


reorganization of obligors to the Company. The aggregate borrowing of the
Company shall be reviewed by the Board of Directors at least quarterly.

                  (e) Lending. Subject to all applicable limitations in these
Articles of Incorporation, to lend money or other Property on such terms, for
such purposes and to such Persons as they may determine.

                  (f) Issuance of Securities. Subject to the provisions of
Article 8 hereof, to create and authorize and direct the issuance (on either a
pro rata or a non-pro rata basis) by the Company, in shares, units or amounts of
one or more types, series or classes, of Securities of the Company, which may
have such voting rights, dividend or interest rates, preferences,
subordinations, conversion or redemption prices or rights, maturity dates,
distribution, exchange, or liquidation rights or other rights as the Directors
may determine, without vote of or other action by the Stockholders, to such
Persons for such consideration, at such time or times and in such manner and on
such terms as the Directors determine, to list any of the Securities of the
Company on any securities exchange; and to purchase or otherwise acquire, hold,
cancel, reissue, sell and transfer any Securities of the Company.

                  (g) Expenses and Taxes. To pay any charges, expenses or
liabilities necessary or desirable, in the sole discretion of the Directors, for
carrying out the purposes of these Articles of Incorporation and conducting the
business of the Company, including compensation or fees to Directors, officers,
employees and agents of the Company, and to Persons contracting with the
Company, and any taxes, levies, charges and assessments of any kind imposed upon
or chargeable against the Company, the Properties or the Directors in connection
therewith other than income or similar taxes imposed upon compensation and fees
paid to Directors; and to prepare and file any tax returns, reports or other
documents and take any other appropriate action relating to the payment of any
such charges, expenses or liabilities.

                  (h) Collection and Enforcement. To collect, sue for and
receive money or other property due to the Company; to consent to extensions of
the time for payment, or to the renewal, of any Securities or obligations; to
engage or to intervene in, prosecute, defend, compound, enforce, compromise,
release, abandon or adjust any actions, suits, proceedings, disputes, claims,
demands, security interests or things relating to the Company, the Property or
the Company's affairs; and to exercise any rights and enter into any agreements
and take any other action necessary or desirable in connection with the
foregoing.

                  (i) Deposits. To deposit funds or Securities constituting part
of the assets of the Company in banks, trust companies, savings and loan
associations, financial institutions and other depositories, whether or not such
deposits will draw interest, subject to withdrawal on such terms and in such
manner as the Directors determine.

                  (j) Allocation; Accounts. Subject to and in accordance with
the Code and generally accepted accounting principles, to determine whether
moneys, profits or other assets of the Company shall be charged or credited to,
or allocated between, income and capital, including whether or not to amortize
any premium or discount and to determine in what manner any expenses or
disbursements are to be borne as between income and capital (regardless of how
such items would normally or otherwise be charged to or allocated between income
and capital without such determination); to treat any dividend or other
distribution on any investment as, or apportion it between, income and capital;
in their discretion to provide reserves for depreciation, amortization,
obsolescence or other purposes in respect of any Property in such amounts and by
such methods as they determine what constitutes net earnings, profits or
surplus; to determine the method or form in which the accounts and records of
the Company shall be maintained; and to allocate to the Stockholders' equity
account less than all of the consideration paid for Securities and to allocate
the balance to paid in capital or capital surplus.

                  (k) Valuation of Assets. To determine the value of all or any
part of the Assets and of any services, Securities, property or other
consideration to be furnished to or acquired by the Company, and from time to
time to revalue all or any part of the Assets, all in accordance with such
market quotations, appraisals or other information as are reasonable, in their
sole judgment, and where required, in accordance with the Code and GAAP.

                  (l) Ownership and Voting Powers. To exercise all of the
rights, powers, options and privileges pertaining to the ownership of any
Mortgages, Securities, Properties and other Assets to the same extent that an
individual owner might, including without limitation to vote or give any
consent, request or notice or

                                       12


waive any notice, either in person or by proxy or power of attorney, which
proxies and powers of attorney may be for any general or special meetings or
action, and may include the exercise of discretionary powers.

                  (m) Officers. To elect, appoint or employ such officers for
the Company and such committees of the Board of Directors with such powers and
duties as the Directors may determine, the Company's Bylaws provide or the MGCL
requires; subject to restrictions advisable with respect to the qualification of
the Company as a REIT, to engage, employ or contract with and pay compensation
to any Person (including subject to Section 5.7 hereof, any Director and any
Person who is an Affiliate of any Director) as agent, representative, Advisor,
member of an advisory board, employee or independent contractor (including
advisors, consultants, transfer agents, registrars, underwriters, accountants,
attorneys-at-law, real estate agents, property and other managers, appraisers,
brokers, architects, engineers, construction managers, general contractors or
otherwise) in one or more capacities, to perform such services on such terms as
the Directors may determine; to delegate to one or more Directors, officers or
other Persons engaged or employed as aforesaid or to committees of Directors or
to the Advisor, the performance of acts or other things (including granting of
consents), the making of decisions and the execution of such deeds, contracts,
leases or other instruments, either in the names of the Company, the Directors
or as their attorneys or otherwise, as the Directors may determine; and to
establish such committees as they deem appropriate.

                  (n) Associations. Subject to Section 5.7 hereof, to cause the
Company to enter into joint ventures, general or limited partnerships,
participation or agency arrangements or any other lawful combinations,
relationships or associations of any kind.

                  (o) Reorganizations, Etc. Subject to Sections 3.3(b), 12.2 and
12.3 hereof, to cause to be organized or assist in organizing any Person under
the laws of any jurisdiction to acquire all or any part of the Property, carry
on any business in which the Company shall have an interest or otherwise
exercise the powers the Directors deem necessary, useful or desirable to carry
on the business of the Company or to carry out the provisions of these Articles
of Incorporation; to merge or consolidate the Company with any Person; to sell,
rent, lease, hire, convey, negotiate, assign, exchange or transfer all or any
part of the Property to or with any Person in exchange for Securities of such
Person or otherwise; and to lend money to, subscribe for and purchase the
Securities of, and enter into any contracts with, any Person in which the
Company holds, or is about to acquire, Securities or any other interests.

                  (p) Insurance. To purchase and pay for insurance policies
insuring the Stockholders, the Company and the Property against any and all
risks, and insuring the Directors, the Advisor and Affiliates of the Company
individually (each an "Insured") against all claims and liabilities of every
nature arising by reason of holding or having held any such status, office or
position or by reason of any action alleged to have been taken or omitted by the
Insured in such capacity, whether or not the Company would have the power to
indemnify against such claim or liability, provided that such insurance be
limited to the indemnification permitted by Section 11.3 hereof in regard to any
liability or loss resulting from negligence, gross negligence, misconduct,
willful misconduct or an alleged violation of federal or state securities laws.
Nothing contained herein shall preclude the Company from purchasing and paying
for such types of insurance, including extended coverage liability and casualty
and workers' compensation, as would be customary for any Person owning
comparable assets and engaged in a similar business, or from naming the Insured
as an additional insured party thereunder, provided that such addition does not
add to the premiums payable by the Company. The Board of Directors' power to
purchase and pay for such insurance policies shall be limited to policies that
comply with all applicable state laws and the NASAA REIT Guidelines.

                  (q) Dividends. To authorize and cause the Company to declare
and pay Dividends or other distributions to Stockholders, subject to the
provisions of Section 8.2 hereof.

                  r) Discontinue Operations; Bankruptcy. To discontinue the
operations of the Company (subject to Section 12.2 hereof); to petition or apply
for relief under any provision of federal or state bankruptcy, insolvency or
reorganization laws or similar laws for the relief of debtors; to permit any
Property to be foreclosed upon without raising any legal or equitable defenses
that may be available to the Company or the Directors or otherwise defending or
responding to such foreclosure; to confess judgment against the Company (as
hereinafter defined); or to take such other action with respect to indebtedness
or other obligations of the Directors, the Property or the Company as the
Directors, in such capacity, and in their discretion may determine.

                                       13


                  (s) Revocation of Status. To revoke the status of the Company
as a real estate investment trust under the REIT Provisions of the Code;
provided, however, that the Board of Directors shall take no action to revoke
the Company's status as a real estate investment trust under the REIT Provisions
of the Code until such time that the Board of Directors adopts a resolution
recommending that the Company revoke its status as a real estate investment
trust under the REIT Provisions of the Code. Prior to such time as the Board of
Directors adopts a resolution recommending that the Company revoke its status as
a real estate investment trust under the REIT Provisions of the Code, the Board
of Directors shall not undertake any action that will jeopardize the Company's
qualification as a REIT.

                  (t) Fiscal Year. Subject to the Code, to adopt, and from time
to time change, a fiscal year for the Company, provided that the fiscal year of
the Company shall be the calendar year for all taxable periods prior to any
termination or revocation of qualification of the Company as a REIT.

                  (u) Seal. To adopt and use a seal, but the use of a seal shall
not be required for the execution of instruments or obligations of the Company.

                  (v) Bylaws. To adopt, implement and from time to time alter,
amend or repeal the Bylaws of the Company relating to the business and
organization of the Company, provided that such Bylaws and amendments are not
inconsistent with the provisions of the Charter.

                  (w) Listing Stock. To cause the Listing of the Common Stock or
Preferred Stock at any time after completion of the Initial Public Offering.

                  (x) Further Powers. To do all other acts and things and
execute and deliver all instruments incident to the foregoing powers, and to
exercise all powers which they deem necessary, useful or desirable to carry on
the business of the Company or to carry out the provisions of these Articles of
Incorporation, even if such powers are not specifically provided hereby.

                                    ARTICLE 4
                                     ADVISOR

         Section 4.1 Appointment and Initial Investment of Advisor. The
Directors are responsible for setting the general policies of the Company and
for the general supervision of its business conducted by officers, agents,
employees, advisors or independent contractors of the Company. However, the
Directors are not required personally to conduct the business of the Company,
and they may (but need not) appoint, employ or contract (to the extent permitted
by Section 856(d)(1) of the Code) with any Person (including a Person Affiliated
with any Director) as an Advisor and may grant or delegate such authority to the
Advisor as the Directors may, in their sole discretion, deem necessary or
desirable. The term of retention of any Advisor shall not exceed one (1) year,
although there is no limit to the number of times that a particular Advisor may
be retained. The Advisor and its Affiliates shall purchase OP Units for
$200,000. The Advisor may not sell this initial investment while the Advisor
remains a Sponsor but may transfer the initial investment to other Affiliates of
the Advisor. Affiliates of the Advisor may not sell this initial investment
while the Advisor remains a Sponsor but may transfer the initial investment to
the Advisor or other Affiliates of the Advisor.

         Section 4.2 Supervision of Advisor. The Directors shall evaluate the
performance of the Advisor before entering into or renewing an advisory contract
and the criteria used in such evaluation shall be reflected in the minutes of
meetings of the Board. The Directors may exercise broad discretion in allowing
the Advisor to administer and regulate the operations of the Company, to act as
agent for the Company, to execute documents on behalf of the Company and to make
executive decisions which conform to general policies and principles established
by the Directors. The Directors shall monitor the Advisor to assure that the
administrative procedures, operations and programs of the Company are in the
best interests of the Company and its Stockholders and are fulfilled.

         The Independent Directors are responsible for reviewing the fees and
expenses of the Company at least annually or with sufficient frequency to
determine that the expenses incurred are reasonable in light of the investment
performance of the Company, its Net Asset Value, its Net Income and the fees and
expenses of other comparable unaffiliated REITs. Each such determination shall
be reflected in the minutes of the meetings of the Board of Directors.

                                       14


         The Independent Directors also will be responsible for reviewing the
performance of the Advisor and determining that compensation to be paid to the
Advisor is reasonable in relation to the nature and quality of services
performed and the investment performance of the Company, and that the provisions
of the Advisory Agreement are being carried out. Specifically, the Independent
Directors will consider factors such as:

                  (a) the amount of the fee paid to the Advisor in relation to
the size, composition and performance of the Company's portfolio;

                  (b) the success of the Advisor in generating opportunities
that meet the investment objectives of the Company;

                  (c) rates charged to other REITs and to investors other than
REITs by advisors performing the same or similar services;

                  (d) additional revenues realized by the Advisor and its
Affiliates through their relationship with the Company, including loan
administration, underwriting or broker commissions, servicing, engineering,
inspection and other fees, whether paid by the Company or by others with whom
the Company does business;

                  (e) the quality and extent of service and advice furnished by
the Advisor;

                  (f) the performance of the investment portfolio of the
Company, including income, conservation or appreciation of capital;

                  (g) frequency of problem investments and competence in dealing
with distress situations; and

                  (h) the quality of the portfolio of the Company relative to
the investments generated by the Advisor for its own account.

         The Independent Directors may also consider all other factors which
they deem relevant and the findings of the Independent Directors on each of the
factors considered shall be recorded in the minutes of the Board of Directors.

         The Board of Directors shall determine whether any successor Advisor
possesses sufficient qualifications to perform the advisory function for the
Company and whether the compensation provided for in its contract with the
Company is justified.

         Section 4.3 Fiduciary Obligations. The Advisor has a fiduciary
responsibility to the Company and to the Stockholders.

         Section 4.4 Affiliations and Licenses. The Directors, by resolution or
in the Bylaws, may provide guidelines or requirements concerning the
professional affiliations and licenses of the Advisor as they relate to the
Company and its business.

         Section 4.5 Payment of Fees and Reimbursement of Expenses. The Company
shall pay the Advisor the fees and reimburse the Advisor for Operating Expenses
as provided in the Advisory Agreement but subject to the limitations contained
herein and in the Advisory Agreement.

         Section 4.6 New Advisor Fee Structures. In the event that the Common
Stock becomes listed on a national securities exchange or traded on the
Nasdaq/NMS market, the Company and the Advisor will negotiate in good faith a
fee structure appropriate a listed company, subject to approval by a majority of
the Independent Directors. In negotiating a new fee structure, the Independent
Directors shall consider all of the factors they deem relevant. These are
expected to include, but will not necessarily be limited to that factors set
forth in Section 4.2 hereof. The Board of Directors, including a majority of the
Independent Directors, may not approve a new fee structure that, in its
judgment, is more favorable to the Advisor than the current fee structure.

         Section 4.7 Termination. Either a majority of the Independent Directors
or the Advisor may terminate the advisory contract on sixty (60) days' written
notice with or without cause and without penalty, and, in

                                       15


such event, the Advisor will cooperate with the Company and the Directors in
making an orderly transition of the advisory function.


         Section 4.8 Advisor Stock Purchase. The Advisor and its Affiliates will
purchase $200,000 of OP Units. The Advisor and its Affiliates may not sell the
Stock issued to the Advisor or its Affiliates with respect to this investment
until the Termination Date but the Advisor may transfer such Stock to Affiliates
of the Advisor and the Affiliates of the Advisor may transfer such Stock to the
Advisor or other Affiliates of the Advisor.



          Section 4.9 Reimbursement for Organizational and Offering Expenses.
The Company shall pay directly or reimburse the Advisor and its Affiliates an
amount of up to 5.0% of the Gross Proceeds, other than Gross Proceeds from Stock
purchased under the Reinvestment Plan, for Organizational and Offering Expenses
(other than Sales Commissions and the dealer manager fee) incurred by the
Advisor or its Affiliates. Provided the Company has first raised $1,000,000 in
the Initial Public Offering, the Company shall reimburse the Advisor and its
Affiliates periodically during the offering period as Gross Proceeds from Stock
are received by the Company.



         Section 4.10 Dealer Manager Fee and Commissions and Due Diligence
Expense Allowance. The Company shall pay the Dealer Manager a fee in the amount
of up to 3% of the Gross Proceeds, other than Gross Proceeds from Stock
purchased under the Reinvestment Plan for acting as dealer manager. The Company
shall pay sales commissions in an amount of up to 7% of the Gross Proceeds to
the Dealer Manager or other broker-dealers who sell Securities other than Gross
Proceeds from Stock purchased under the Reinvestment Plan. The Company shall
also provide the Dealer Manager with an allowance for bona fide due diligence
expenses of up to 0.5% of the Gross Proceeds, other than Gross Proceeds from
Stock purchased under the Reinvestment Plan. Provided the Company has first
raised $1,000,000 in the Initial Public Offering, the Company shall pay the
Dealer Manager the dealer manager fee, sales commissions and non-accountable due
diligence expense allowance periodically during the offering period as Gross
Proceeds from the sale of Securities are received by the Company.


         Section 4.11 Advisor Acquisition Fees. The Company shall pay the
Advisor, as compensation for services rendered in connection with the
investigation, selection and acquisition (by purchase, investment or exchange)
of Properties, Advisor Acquisition Fees in an amount equal to 2% of Gross
Proceeds, other than Gross Proceeds from Stock purchased under the Reinvestment
Plan, payable by the Company upon the Company's receipt of Gross Proceeds;
provided that upon termination of this Agreement, the Advisor will be obligated
to reimburse the Company for any Advisor Acquisition Fee that has not been
allocated to the purchase price of Company Properties as provided for in Section
5.2. The Acquisition Fees we pay our Advisor may be increased with the approval
of a majority of our independent directors.

         Section 4.12 Reimbursement for Acquisition Expenses. Subject to the
limitations contained in Section 5.2 hereof, the Company shall reimburse the
Advisor and its Affiliates for Acquisition Expenses incurred by the Advisor or
its Affiliates.


         Section 4.13 Asset Management Fee. Commencing on the date hereof, the
Company shall pay the Advisor for the asset management services included in the
services described in Section 4 a monthly fee (the "Asset Management Fee") in an
amount equal to one-twelfth of 1% of the Average Invested Assets, calculated
on a monthly basis as of the last day of each month. The Asset Management Fee
shall be reduced if the Independent Directors determine that compensation to be
paid to the Advisor is not reasonable in relation to the nature and quality of
services performed and the investment performance of the Company and that the
provisions of the Advisory Agreement are being carried out in accordance with
Section 4.2.


         Section 4.14 Reimbursement for Operating Expenses. Subject to the
limitations contained in Section 5.3 hereof, the Company shall reimburse the
Advisor for Operating Expenses incurred by the Advisor on behalf of the Company.

         Section 4.15 Property Management and Leasing Fees. If the Company
retains the Advisor or its Affiliates to manage or lease any of our Properties,
the Company will pay the Advisor or its Affiliates a market-based fee which is
what other management or leasing companies generally charge for the management
or leasing of

                                       16


similar properties, and which may include reimbursement for the costs and
expenses the Advisor or its Affiliates incurs in managing or leasing the
Properties.

         Section 4.16 Disposition Fees. Provided the Advisor or an Affiliate
provides a substantial amount of the services (as determined by a majority of
the Directors, including a majority of the Independent Directors) in connection
with the Sale of one or more Properties, the Advisor or such Affiliate shall
receive at closing a Disposition Fee equal to 3% of the sales price of such
Property or Properties. Any Disposition Fee payable under this section may be
paid in addition to real estate commissions paid to non-Affiliates, provided
that the total real estate commissions (including such Disposition Fee) paid to
all Persons by the Company for each Property shall not exceed an amount equal to
the lesser of (i) 6% of the aggregate Contract Sales Price of each Property or
(ii) the Competitive Real Estate Commission for each Property. The Company will
pay the Disposition Fees for a property at the time the property is sold.

         Section 4.17 Subordinated Share of Net Sale Proceeds. The Subordinated
Share of Net Sale Proceeds shall be payable to the Advisor at the time or times
that the Company determines that the Subordinated Share of Net Sale Proceeds has
been earned by the Advisor. In the case of multiple advisors, advisors and
Affiliates shall be allowed incentive fees in accordance with the foregoing
limitation, provided such fees are distributed by a proportional method
reasonably designed to reflect the value added to the Company's Assets by each
respective advisor or Affiliate.

         Section 4.18 Subordinated Incentive Fee Due Upon Listing. Upon Listing,
the Advisor shall be entitled to the Subordinated Incentive Fee Due Upon
Listing. The Subordinated Incentive Fee Due Upon Listing shall be payable to the
Advisor during the thirty (30) day period following eighteen (18) months after
Listing. The Company shall have the option to pay such fee in the form of cash,
Stock, a promissory note or any combination of the foregoing as determined by
the Board of Directors. In the event the Subordinated Incentive Fee Due Upon
Listing is paid to the Advisor following Listing, the Advisor will not be
entitled to receive any payments of Subordinated Performance Fee Upon
Termination or Subordinated Share of Net Sale Proceeds following receipt of the
Subordinated Incentive Fee Due Upon Listing.

         Section 4.19 Fees Upon Termination of Advisory Agreement. Upon
termination of the Advisory Agreement, the Company shall pay to the Advisor all
unpaid reimbursable expenses and all earned but unpaid fees payable to the
Advisor prior to termination of the Advisory Agreement, and the Subordinated
Performance Fee Due Upon Termination, provided that no Subordinated Performance
Fee Due Upon Termination will be paid if the Company has paid or is obligated to
pay the Subordinated Incentive Fee Due Upon Listing.

                                    ARTICLE V
            PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN
            POWERS OF THE COMPANY AND ITS DIRECTORS AND STOCKHOLDERS

         Section 5.1 Limitation on Organization and Offering Expenses. The
Company shall pay only reasonable Organization and Offering Expenses and in no
event shall such expenses incurred by the Company, including the Sales
Commissions, the dealer manager fee and the allowance for bona fide due
diligence expenses payable to the Dealer Manager, exceed 15% of Gross Proceeds
of any applicable offering.

         Section 5.2 Limitation on Acquisition Fees and Acquisition Expenses.
The total of all Acquisition Fees and Acquisition Expenses paid by the Company
in connection with the purchase of a Property by the Company shall be
reasonable, and shall in no event exceed an amount equal to 6% of the Contract
Purchase Price, or in the case of a mortgage loan, 6% of the funds advanced;
provided, however, that a majority of the Directors (including the majority of
the Independent Directors) not otherwise interested in the transaction may
approve fees and expenses in excess of these limits if they determine the
transaction to be commercially competitive, fair and reasonable to the Company.


         Section 5.3 Limitation on Operating Expenses. The Board of Directors
shall have the responsibility of limiting Operating Expenses to amounts that do
not exceed the greater of 2% of Average Invested Assets or 25% of NASAA Net
Income (the "Excess Expense Guidelines") for the four consecutive fiscal
quarters then ended unless a majority of the Directors (including a majority of
the Independent Directors) has made a finding that, based on unusual and
non-recurring factors that they deem sufficient, a higher level of expenses (an
"Excess Amount") is justified. Any such finding and the reasons in support
thereof shall be reflected in the minutes of the meetings.


                                       17


Within 60 days after the end of any fiscal quarter of the Company for which
there is an Excess Amount for the 12 months then ended, there shall be sent to
the Stockholders a written disclosure of such fact, together with an explanation
of the factors considered in determining that such Excess Amount was justified.
In the event that a majority of the Directors (including a majority of the
Independent Directors) does not determine that excess expenses are justified,
the Advisor shall reimburse the Company within a reasonable time after the end
of the 12-month period the amount by which the aggregate annual expenses paid or
incurred by the Company exceeded the Excess Expense Guidelines.

         Section 5.4 Limitation on Real Estate Commissions. If the Advisor or a
director or Sponsor or any Affiliate thereof provides a substantial amount of
the services in the effort to sell the property of the Company, that Person may
receive an amount up to 3% of the sales price of such property or properties;
provided, however, that the amount paid when added to all other real estate
commissions paid to unaffiliated parties in connection with such sale shall not
exceed the lesser of the Competitive Real Estate Commission or an amount equal
to 6% of the sales price of such property or properties.

         Section 5.5 Limitation on Transactions with Affiliates.

                  (a) Sales and Leases to the Company. The Company shall not
purchase Property from the Sponsor, Advisor, Directors or any Affiliate thereof,
unless a majority of Directors (including a majority of Independent Directors)
not otherwise interested in such transaction approve the transaction as being
fair and reasonable to the Company and at a price to the Company no greater than
the cost of the asset to such Sponsor, Advisor, Director or any Affiliate
thereof, or if the price to the Company is in excess of such cost, that
substantial justification for such excess exists and such excess is reasonable
and consistent with current market conditions. In no event shall the cost of
such asset to the Company exceed its Appraised Value at the time of acquisition
of the Property by the Company.

                  (b) Sales and Leases to Sponsor, Advisor, Director or any
Affiliate. A Sponsor, Advisor, Director or any Affiliate thereof shall not
acquire assets from the Company unless approved by a majority of Directors
(including a majority of Independent Directors), not otherwise interested in
such transaction, as being fair and reasonable to the Company. The Company may
lease assets to a Sponsor, Advisor, Director or any Affiliate thereof only if
approved by a majority of the Directors (including a majority of Independent
Directors), not otherwise interested in such transaction, as being fair and
reasonable to the Company.

                  (c) Loans. No loans may be made by the Company to the Sponsor,
Advisor, Director or any Affiliate thereof except that loans may be made to
wholly owned subsidiaries of the Company. Notwithstanding the foregoing, subject
to the Excess Expense Guidelines, the Company may advance funds to the Advisor
for expenses the Advisor anticipates will be incurred by the Advisor within the
current month and any such advances shall be deducted from the amounts
reimbursed by the Company to the Advisor. The Company may not borrow money from
the Sponsor, Advisor, Director or any Affiliate thereof, unless a majority of
Directors (including a majority of Independent Directors) not otherwise
interested in such transactions, approve the transaction as being fair,
competitive and commercially reasonable and no less favorable to the Company
than loans between unaffiliated parties under the same circumstances.

                  (d) Other Transactions. All other transactions between the
Company and the Sponsor, Advisor, Director or any Affiliate thereof, shall
require approval by a majority of the Directors (including a majority of
Independent Directors) not otherwise interested in such transactions as being
fair and reasonable to the Company and on terms and conditions not less
favorable to the Company than those available from unaffiliated third parties.

                  (e) Additional Limitations. Transactions between the Company
and its Affiliates are further subject to any express restrictions in the
Charter and further subject to any disclosure and ratification requirements of
the MGCL and other applicable law.

         Section 5.6 Limitation of Issuance of Securities. The Company shall not
issue (A) equity securities redeemable solely at the option of the holder
(except that Stockholders may offer their Common Stock to the Company pursuant
to that certain redemption plan adopted or to be adopted by the Board of
Directors on terms outlined in the section relating to Common Stock entitled
"Stock Repurchase Program" in the Company's Prospectus relating to the Initial
Public Offering); (B) debt securities unless the historical debt service
coverage (in

                                       18


the most recently completed fiscal year) as adjusted for known changes is
sufficient to properly service that higher level of debt; (C) Stock on a
deferred payment basis or under similar arrangements; or (D) assessable
securities. Options may not be issued to the Advisor, Director, Sponsor or any
Affiliate thereof except on the same terms as the securities underlying such
Options are sold to the general public. Options may be issued to persons other
than the Advisor, Directors, Sponsor or any Affiliate thereof but not at
exercise prices less than the fair market value of the underlying securities on
the date of grant and not for consideration that in the judgment of the
Independent Directors has a market value less than the value of such Option on
the date of grant. Options issuable to the Advisor, Directors, Sponsor or any
Affiliate thereof shall not exceed 10% of the outstanding shares of Stock on the
date of grant. The voting rights per share of Stock of the Company (other than
the publicly held Stock of the Company) sold in a private offering shall not
exceed the voting rights which bear the same relationship to the voting rights
of the publicly held Stock as the consideration paid to the Company for each
privately offered share of Stock of the Company bears to the book value of each
outstanding publicly held share of Stock.

         Section 5.7 Limitation on Borrowing. The aggregate borrowing of the
Company, secured and unsecured, shall be reasonable in relation to the Net Asset
Value of the Company and shall be reviewed by the Board of Directors at least
quarterly. Prior to the Listing of the Common Stock, (i) the aggregate amount of
Company borrowings in relation to the Net Asset Value shall, in the absence of a
satisfactory showing that a higher level of borrowing is appropriate, not exceed
300% of the Net Asset Value and (ii) any excess in borrowing over such 300% of
the Net Asset Value shall be approved by a majority of the Independent Directors
and disclosed to Stockholders in the Company's next quarterly report to
Stockholders, along with justification for such excess.

         The Company may incur indebtedness including to enable it to pay
Dividends including those necessary to satisfy the requirement that the Company
distribute at least the percentage of its REIT taxable income required for
annual distribution of dividends by the Code or otherwise as necessary or
advisable to assure that the Company maintains its qualification as a REIT for
federal income tax purposes.

                                    ARTICLE 6
                INVESTMENT OBJECTIVES AND INVESTMENT LIMITATIONS

         Section 6.1 Investment Objectives. The Company will endeavor to:

                  (i)      preserve Stockholder capital by owning and operating
                           real estate on an all-cash basis with no permanent
                           debt financing;

                  (ii)     purchase Properties with the potential for capital
                           appreciation to Stockholders;

                  (iii)    purchase income-producing Properties which will allow
                           the Company to pay cash Dividends to Stockholders at
                           least quarterly, if not more frequently; and

                  (iv)     provide liquidity to Stockholders within the shortest
                           reasonable time necessary to accomplish the above
                           objectives.

         Within five years from the closing of the Initial Public Offering, the
Board must take one or more of the following actions:

                  (i)      modify the Company's stock redemption program to
                           allow the Company to use proceeds from the sale of
                           Properties to redeem Stock;

                  (ii)     list the Stock for trading on a national securities
                           exchange or the Nasdaq/NMS;

                  (iii)    seek Stockholder approval to begin an orderly
                           liquidation of the Company's assets and distribute
                           the available proceeds of such Sales to Stockholders;
                           or

                  (iv)     seek Stockholder approval of another liquidity event
                           such as a Sale of our assets or a merger with another
                           entity.

                                       19


         The sheltering from tax of income from other sources is not an
objective of the Company. Subject to the restrictions set forth herein, the
Directors will use their commercially reasonable efforts to conduct the affairs
of the Company in such a manner as to continue to qualify the Company for the
tax treatment provided in the REIT Provisions of the Code; provided, however, no
Director, officer, employee or agent of the Company shall be liable for any act
or omission resulting in the loss of tax benefits under the Code, except to the
extent provided in Section 11.2 hereof.

         Section 6.2 Review of Objectives. The Independent Directors shall
review the investment policies of the Company with sufficient frequency and at
least annually to determine that the policies being followed by the Company at
any time are in the best interests of its Stockholders. Each such determination
and the basis therefore shall be set forth in the minutes of the meetings of the
Board of Directors. The Board of Directors may amend the Charter to change the
Company's investment policies or investment restrictions in a manner which
adversely affect the rights, preferences and privileges of Stockholders only
with the approval of a majority of the Independent Directors.

         Section 6.3 Certain Permitted Investments.

                  (a) The Company may invest in Properties.

                  (b) The Company may invest in Joint Ventures with unrelated
parties. The Company may also invest in Joint Ventures with the Sponsor,
Advisor, one or more Directors or any Affiliate, but only if a majority of
Directors (including a majority of Independent Directors) not otherwise
interested in the transaction, approve such investment as being fair and
reasonable to the Company and on substantially the same terms and conditions as
those received by the other joint venturers.

                  (c) Subject to any limitations set forth in Section 6.4, the
Company may invest in equity securities if a majority of Directors (including a
majority of Independent Directors) not otherwise interested in the transaction
approve such investment as being fair, competitive and commercially reasonable.

         Section 6.4 Investment Limitations. In addition to other investment
restrictions imposed by the Directors from time to time, and consistent with the
Company's objective of qualifying as a REIT, the following shall apply to the
Company's investments prior to, but not after, the Listing of the Common Stock:

                  (a) The Company shall not invest in Unimproved Real Property
or mortgage loans on Unimproved Real Property.

                  (b) The Company shall not invest in commodities or commodity
future contracts. This limitation is not intended to apply to futures contracts,
when used solely for hedging purposes in connection with the Company's ordinary
business of investing in real estate assets and mortgages, provided that income
and gain with respect to such futures contracts is treated as qualifying income
under Section 856(c)(2) of the Code.

                  (c) The Company may make or invest in mortgage loans provided
an appraisal is obtained concerning the underlying property except for those
loans insured or guaranteed by a government or government agency. In cases in
which a majority of Independent Directors so determine, and in all cases in
which the transaction is with the Advisor, Directors, or any Affiliates, such
appraisal of the underlying property must be obtained from an Independent
Appraiser. Such appraisal shall be maintained in the Company's records for at
least five (5) years and shall be available for inspection and duplication by
any Stockholder. In addition to the appraisal, a mortgagee's or owner's title
insurance policy or commitment as to the priority of the mortgage or condition
of the title must be obtained.

                  (d) The Company shall not make or invest in mortgage loans on
any one (1) Property if the aggregate amount of all mortgage loans outstanding
on the Property, including the loans of the Company, would exceed an amount
equal to eighty-five percent (85%) of the Appraised Value of the Property as
determined by an Independent Appraiser unless substantial justification exists
because of the presence of other underwriting criteria. For purposes of this
subsection, the "aggregate amount of all Mortgage Loans outstanding on the
Property, including the loans of the Company" shall include all interest
(excluding contingent participation in income and/or appreciation in value of
the mortgaged Property), the current payment of which may be deferred

                                       20


pursuant to the terms of such loans, to the extent that deferred interest on
each loan exceeds five percent (5%) per annum of the principal balance of the
loan.

                  (e) The Company shall not make or invest in construction
loans.

                  (f) The Company shall not invest in indebtedness secured by a
mortgage on real property which is subordinate to the lien of other
indebtedness.

                  (g) The Company shall not make or invest in any mortgage loans
that are subordinate to any mortgage, other indebtedness or equity interest of
the Advisor, the Directors, the Sponsor or an Affiliate of the Company.

                  (h) The Company shall not underwrite the securities of other
issuers. In addition, the Company shall not invest in securities of other
issuers, except for investments in Joint Ventures as described herein, unless a
majority of the Directors (including a majority of Independent Directors) not
otherwise interested in such transaction approve the transaction as being fair,
competitive and commercially reasonable.

                  (i) The Company will not make any investment that the Company
believes will be inconsistent with its objectives of qualifying and remaining
qualified as a REIT.

                  (j) The Company shall not invest in real estate contracts of
sale, otherwise known as land sale contracts.

                  (k) The Company shall not invest in joint ventures with the
Sponsor, Advisor, Director or any Affiliate thereof, unless a majority of
Directors (including a majority of Independent Directors) not otherwise
interested in such transactions, approve the transaction as being fair and
reasonable to the Company and on substantially the same terms and conditions as
those received by the other joint ventures.

                  (l) The Company shall not invest in equity securities unless a
majority of Directors (including a majority of Independent Directors) not
otherwise interested in such transaction approve the transaction as being fair,
competitive, and commercially reasonable.

                  (m) The Company shall not ordinarily pay consideration for a
Property acquired by the Company which is not based on the fair market value of
the Property as determined by a majority of the Directors. In cases in which a
majority of the Independent Directors so determine, and in all cases in which
assets are acquired from the Advisor, Directors, Sponsor or their Affiliates,
such fair market value shall be as determined by an Independent Appraiser
selected by the Independent Directors.

                                    ARTICLE 7
                   CONFLICTS OF INTEREST RESOLUTION PROCEDURES
         Section 7.1 Independent Directors Committee. During any time that the
Company is advised by the Advisor, there shall be a committee (the "Independent
Directors Committee") of the Board of Directors comprised of all of the
Independent Directors. The Independent Directors Committee shall have the
maximum power delegable to a committee under the MGCL and is authorized to
select and retain its own legal and financial advisors. The Independent
Directors Committee may act on any matter permitted by the MGCL if its minutes
reflect that it first determined that the matter at issue was such that the
exercise of independent judgment by the directors who are not Independent
Directors could reasonably be compromised, provided that this condition shall
not apply if the charter otherwise requires that the action shall be taken by
the Independent Directors Committee. If this condition is met but the matter
cannot be delegated to a committee under the MGCL, both the Board of Directors
and the Independent Directors Committee must approve the matter. Any board
action regarding Organization and Offering Expenses or the selection of an
Independent Appraiser or the matters covered in any of Sections 2.1, 2.6, 3.1,
4.2, 4.6, 4.7, 4.12, 4.16, 5.2, 5.3, 5.5, 5.6, 5.7, 6.2, 6.3, 6.4, 8.3, 10.1,
10.6 and 12.3 shall require the approval of the Independent Directors Committee.
         Section 7.2 Voting by Independent Directors Committee. For an action to
be taken by the Independent Directors Committee, the matter must be approved by
(i) a majority of the Independent Directors and (ii) a majority of the
Independent Directors not otherwise interested in the transaction.

                                       21


         Section 7.3 Meetings of Independent Directors Committee. A meeting of
the Independent Directors Committee shall be held immediately following and at
the same place as any meeting of the board of directors. Any notice of a meeting
of the Board of Directors shall be deemed to be a notice of a meeting of the
Independent Directors Committee.

         Section 7.4 Conflict Resolution Procedures. Before the Advisor presents
an investment opportunity that would in its judgment be suitable for the Company
to another Advisor-sponsored entities, the Advisor shall determine in its sole
discretion that the investment opportunity is more suitable for such other
program than for the Company based on factors such as the following: as the
investment objectives and criteria of each program, the cash requirements and
anticipated cash flow of each entity, the size of the investment opportunity,
the effect of the acquisition both on diversification of each entity's
investments, the income tax consequences of the purchase on each entity, the
policies of each program relating to leverage, the amount of funds available to
each program, and the length of time such funds have been available for
investment. In the event that an investment opportunity becomes available that
is, in the sole discretion of the Advisor, equally suitable for both the Company
and another Advisor-sponsored program, then the Advisor may offer the other
program the investment opportunity if it has had the longest period of time
elapse since it was offered an investment opportunity. The Advisor will use its
reasonable efforts to fairly allocate investment opportunities in accordance
with such allocation method and will promptly disclose any material deviation
from such policy or the establishment of a new policy, which shall be allowed
provided (1) the Board is provided with notice of such policy at least 60 days
prior to such policy becoming effective and (2) such policy provides for the
reasonable allocation of investment opportunities among such programs. The
Advisor shall provide the Independent Directors Committee with any information
reasonably requested so that the Independent Directors Committee can insure that
the allocation of investment opportunities is applied fairly. Nothing herein
shall be deemed to prevent the Advisor or an Affiliate from pursuing an
investment opportunity directly rather than offering it to the Company or
another Advisor-sponsored program so long as the Advisor is fulfilling its
obligation to present a continuing and suitable investment program to the
Company which is consistent with the investment policies and objectives of the
Company. If a subsequent development, such as a delay in the closing of a
property or a delay in the construction of a property, causes any such
investment, in the opinion of the Board of Directors and the Advisor, to be more
appropriate for an entity other than the entity which committed to make the
investment, however, the Advisor has the right to agree that the other entity
affiliated with the Advisors or its Affiliates may make the investment.

         Section 7.5 Compliance with Code Requirements. The provisions of this
Article 7 shall be applied consistently with the requirements of Section
856(d)(1) of the Code.

                                    ARTICLE 8
                                      STOCK

         Section 8.1 Authorized Stock. The total number of shares of Stock which
the Company is authorized to issue is three hundred million (300,000,000),
consisting of two hundred ninety million (290,000,000) shares of common stock,
$0.001 par value per share (as defined in Section 8.2 hereof), and ten million
(10,000,000) shares of preferred stock, $0.001 par value per share (as defined
in Section 8.3 hereof). All shares of Stock shall be fully paid and
nonassessable when issued. Stock may be issued for such consideration as the
Directors determine, or if issued as a result of a share dividend or share
split, without any consideration. If shares of one class of Stock are classified
or reclassified into shares of another class of Stock pursuant to Sections
8.2(b) or 8.3, the number of authorized shares of the former class shall be
automatically decreased and the number of shares of the latter class shall be
automatically increased, in each case by the number of shares so classified or
reclassified, so that the aggregate number of shares of Stock of all classes
that the Company has authority to issue shall not be more than the total number
of shares of Stock set forth in the first sentence of this Section 8.1. The
Board of Directors, with the approval of a majority of the entire Board and
without any action by the Stockholders, may amend the Charter from time to time
to increase or decrease the aggregate number of shares of Stock or the number of
shares of Stock of any class or series that the Company has authority to issue.

         Section 8.2 Common Stock.

                  (a) Common Stock Subject to Terms of Preferred Stock. The
Common Stock shall be subject to the express terms of any series of Preferred
Stock.

                                       22


                  (b) Description. Shares of Common Stock shall have a par value
of $0.001 per share and, subject to the provisions of Article IX and except as
may otherwise be specified in the terms of any class or series of Common Stock,
shall entitle the holders to one (1) vote per share on all matters upon which
Stockholders are entitled to vote pursuant to Section 8.2 hereof, and shares of
a particular class of issued shares of Common Stock shall have equal dividend,
distribution, liquidation and other rights, and shall have no preference,
cumulative, preemptive, conversion or exchange rights. The Directors may
classify or reclassify any unissued shares of Common Stock from time to time in
one or more classes or series of Stock by designating a class or series to
distinguish the class or series of classified or reclassified shares from all
other classes and series of Stock, specifying the number of shares to be
included in such class or series, setting or changing, subject to the provisions
of Article IX and the express terms of any class or series of Stock outstanding
at the time, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
or terms or conditions of redemption of any such shares of Common Stock and, in
such event, the Company shall file for record with the SDAT articles
supplementary in substance and form as prescribed by Title 2 of the MGCL. Any of
the terms of any class or series of Stock set or changed may be made dependent
upon facts or events ascertainable outside the Charter (including determinations
by the Board of Directors or other facts or events within the control of the
Company) and may vary among holders thereof, provided that the manner in which
such facts, events or variations shall operate upon the terms of such class or
series of stock is clearly and expressly set forth in the articles supplementary
or other charter document.

                  (c) Distribution Rights. The holders of shares of Common Stock
shall be entitled to receive such Dividends as may be authorized by the Board of
Directors of the Company out of funds legally available therefor.


                  (d) Dividend or Distribution Rights. The Directors from time
to time may authorize and the Company shall pay to holders of shares of Common
Stock such Dividends or distributions in cash or other property as the Directors
in their discretion shall determine. The Directors shall endeavor to authorize
and the Company shall pay such Dividends and distributions as shall be necessary
for the Company to qualify as a real estate investment trust under the REIT
Provisions of the Code; provided, however, Stockholders shall have no right to
any dividend or Distribution unless and until authorized by the Directors. The
exercise of the powers and rights of the Directors pursuant to this section
shall be subject to the provisions of any senior class or series of Stock at the
time outstanding. The receipt by any Person in whose name any shares of Stock
are registered on the records of the Company or by his duly authorized agent
shall be a sufficient discharge for all Dividends or distributions payable or
deliverable in respect of such Stock and from all liability to see to the
application thereof. Distributions in kind shall not be permitted, except for
(i) distributions of equity securities of the Company pursuant to the Special
10% Stock Dividend; (ii) distributions of readily marketable securities
including readily marketable equity securities of the Company and (iii)
distributions of beneficial interests in a liquidating trust established for the
dissolution of the Company and the liquidation of its assets in accordance with
the terms of these Articles of Incorporation.


                  (e) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any distribution of the
assets of the Company, the aggregate assets available for distribution to
holders of the shares of Common Stock shall be determined in accordance with
applicable law. Each holder of Common Stock of a particular class shall be
entitled to receive, ratably with (i) each other holder of Common Stock of such
class and (ii) each holder of Stock-in-Trust, that portion of such aggregate
assets available for distribution to such class as the number of the outstanding
shares of Common Stock held by such holder bears to the total number of
outstanding shares of Common Stock of such class and Stock-in-Trust of such
class then outstanding.

                  (f) Voting Rights. Except as may be provided otherwise in
these Articles of Incorporation, and subject to the express terms of any series
of Preferred Stock, the holders of the Common Stock shall have the exclusive
right to vote on all matters (as to which a common Stockholder shall be entitled
to vote pursuant to applicable law) at all meetings of the Stockholders of the
Company.

         Section 8.3 Preferred Stock. The Directors may classify any unissued
shares of Preferred Stock and reclassify any previously classified but unissued
shares of Preferred Stock of any series from time to time, in one or more
classes or series of Stock. Notwithstanding the foregoing authority, (i) the
authorization of any class or series of Preferred Stock shall be approved by a
majority of the Independent Directors and (ii) shares of Preferred Stock of any
class or series may not be issued to the Advisor, any Director or any of their
Affiliates unless and until the rights and preferences of such class or series
of Preferred Stock have been approved by holders of Common Stock. Prior to

                                       23


the issuance of each such class or series, the Board of Directors, by
resolution, shall (i) designate that class or series to distinguish it from all
other classes and series of Stock, (ii) specify the number of shares to be
included in the class or series, (iii) set or change, subject to the provisions
of Article IX and to the express terms of any class or series of Stock
outstanding at the time, the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption for each class or series
and (iv) cause the Company to file articles supplementary with the SDAT. Any of
the terms of any class or series of stock set or changed may be made dependent
upon facts or events ascertainable outside the Charter (including determinations
by the Board of Directors or other facts or events within the control of the
Company) and may vary among holders thereof, provided that the manner in which
such facts, events or variations shall operate upon the terms of such class or
series of stock is clearly and expressly set forth in the articles supplementary
or other charter document. The authority of the Board of Directors with respect
to each series shall include, but not be limited to, determination of the
following:

                  (a) The designation of the series, which may be by
distinguishing number, letter or title.

                  (b) The dividend rate on the shares of the series, if any,
whether any dividends shall be cumulative and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on shares
of the series.

                  (c) The redemption rights, including conditions and the price
or prices, if any, for shares of the series.

                  (d) The terms and amounts of any sinking fund for the purchase
or redemption of shares of the series.

                  (e) The rights of the shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company, and the relative rights of priority, if any, of payment of
shares of the series.

                  (f) Whether the shares of the series shall be convertible into
shares of any other class or series, or any other security, of the Company or
any other corporation or other entity, and, if so, the specification of such
other class or series or such other security, the conversion price or prices or
rate or rates, any adjustments thereof, the date or dates on which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made.

                  (g) Restrictions on the issuance of shares of the same series
or of any other class or series.

                  (h) The voting rights of the holders of shares of the series
subject to the limitations contained in this Section 8.3; provided, however,
that the voting rights of the holders of shares of any series of Preferred Stock
shall not exceed the voting rights that bear the same relationship to the voting
rights of the holders of Common Stock as the consideration paid to the Company
for each share of Preferred Stock bears to the book value of each outstanding
share of Common Stock.

                  (i) Any other relative rights, preferences and limitations on
that series, subject to the express provisions of any other series of Preferred
Stock then outstanding. Notwithstanding any other provision of these Articles of
Incorporation, the Board of Directors may increase or decrease (but not below
the number of shares of such series then outstanding) the number of shares, or
alter the designation or classify or reclassify any unissued shares of a
particular series of Preferred Stock, by fixing or altering, in one or more
respects, from time to time before issuing the shares, the terms, rights,
restrictions and qualifications of the shares of any such series of Preferred
Stock.

         Section 8.4 Preemptive and Appraisal Rights. Except as may be provided
by the Board of Directors in setting the terms of classified or reclassified
shares of stock pursuant to Section 8.2 or 8.3 or as may otherwise be provided
by contract, holders of Stock shall not have any preemptive or other right to
purchase or subscribe for any class of securities of the Company which the
Company may at any time issue or sell. Holders of Stock shall not be entitled to
exercise any rights of an objecting stockholder provided for under Title 3,
Subtitle 2 of the MGCL or any

                                       24


successor statute unless the Board of Directors, upon the affirmative vote of a
majority of the Board of Directors, shall determine that such rights apply, with
respect to all or any classes or series of Stock, to one or more transactions
occurring after the date of such determination in connection with which holders
of such shares would otherwise be entitled to exercise such rights.

         Section 8.5 No Issuance of Share Certificates. Until Listing, the
Company shall not issue share certificates except to Stockholders who make a
written request to the Company. A Stockholder's investment shall be recorded on
the books of the Company. To transfer his or her Stock a Stockholder shall
submit an executed form to the Company, which form shall be provided by the
Company upon request. Such transfer will also be recorded on the books of the
Company. Upon issuance or transfer of Stock, the Company will provide the
Stockholder with information concerning his or her rights with regard to such
Stock, in a form substantially similar to Section 9.12, and as required by the
Bylaws and the MGCL or other applicable law.

         Section 8.6 Suitability of Stockholders.

                  (a) Investor Suitability Standards. Subject to suitability
standards established by individual states, to become a Stockholder in the
Company, if such prospective Stockholder is an individual (including an
individual beneficiary of a purchasing Individual Retirement Account), or if the
prospective Stockholder is a fiduciary (such as a trustee of a trust or
corporate pension or profit sharing plan, or other tax-exempt organization, or a
custodian under a Uniform Gifts to Minors Act), such individual or fiduciary, as
the case may be, must represent to the Company, among other requirements as the
Company may require from time to time:

                           (1) that such individual (or, in the case of a
fiduciary, that the fiduciary account or the donor who directly or indirectly
supplies the funds to purchase the Shares) has a minimum annual gross income of
$45,000 and a net worth (excluding home, furnishings and automobiles) of not
less than $45,000; or

                           (2) that such individual (or, in the case of a
fiduciary, that the fiduciary account or the donor who directly or indirectly
supplies the funds to purchase the Stock) has a net worth (excluding home,
furnishings and automobiles) of not less than $150,000.

                  (b) Determination of Suitability of Sale. The Sponsor and each
Person selling Stock on behalf of the Sponsor or the Company shall make every
reasonable effort to determine that the purchase of Stock is a suitable and
appropriate investment for each Stockholder. In making this determination, the
Sponsor or each Person selling Stock on behalf of the Sponsor or the Company
shall ascertain that the prospective Stockholder: (i) meets the minimum income
and net worth standards established for the Company; (ii) can reasonably benefit
from the Company based on the prospective Stockholder's overall investment
objectives and portfolio structure; (iii) is able to bear the economic risk of
the investment based on the prospective Stockholder's overall financial
situation; and (iv) has apparent understanding of the fundamental risks of the
investment; the risk that the Stockholder may lose the entire investment; the
lack of liquidity of Stock; the restrictions on transferability of Stock; the
background and qualifications of the Sponsor or the Advisor; and the tax
consequences of the investment. The Sponsor or each Person selling Stock on
behalf of the Sponsor or the Company shall make this determination on the basis
of information it has obtained from a prospective Stockholder. Relevant
information for this purpose will include at least the age, investment
objectives, investment experiences, income, net worth, financial situation, and
other investments of the prospective Stockholder, as well as any other pertinent
factors.

         The Sponsor or each Person selling Stock on behalf of the Sponsor or
the Company shall maintain records of the information used to determine that an
investment in Stock is suitable and appropriate for a Stockholder. The Sponsor
or each Person selling Stock on behalf of the Sponsor or the Company shall
maintain these records for at least six years.

                  (c) Minimum Investment. Subject to certain individual state
requirements, no sale of Stock by the Company to initial investors will be
permitted of less than $2,000 except that no sale of Stock by the Company to
initial investors which are retirement plans including Keoghs and IRAs will be
permitted of less than $1,000.

         Section 8.7 Repurchase of Shares. The Board of Directors may establish,
from time to time, a program or programs by which the Company voluntarily
repurchases Stock from its Stockholders, provided, however, that such repurchase
does not impair the capital or operations of the Company and does not violate
any

                                       25


provision of this Article 8 or applicable law. The Sponsor, Advisor, Directors
or any Affiliates thereof may not receive any fees on the repurchase of Shares
by the Company.

         Section 8.8 Dividend Reinvestment Plans. The Board of Directors may
establish, from time to time, a dividend reinvestment plan or plans (a
"Reinvestment Plan"). Pursuant to such Reinvestment Plan, (i) all material
information regarding the Dividends to the Stockholders and the effect of
reinvesting such Dividends, including the United States federal income tax
consequences of the reinvestment, shall be provided to the Stockholders at least
annually, and (ii) each Stockholder participating in such Reinvestment Plan
shall have a reasonable opportunity to withdraw from the Reinvestment Plan at
least annually after receipt of the information required in clause (i) above.

         Section 8.9 Charter and Bylaws. The rights of all Stockholders and the
terms of all Stock are subject to the provisions of the Charter and the Bylaws.

                                    ARTICLE 9
                 RESTRICTIONS ON OWNERSHIP AND TRANSFER OF STOCK

         Section 9.1 Definitions. For purposes this Article 9, the following
terms shall have the following meanings:

         Acquire means the acquisition of Beneficial or Constructive Ownership
of Stock by any means, including, without limitation, the exercise of any rights
under any option, warrant, convertible security, pledge or other security
interest or similar right to acquire Stock, but shall not include the
acquisition of any such rights unless, as a result, the acquirer would be
considered a Beneficial Owner or Constructive Owner. The terms "Acquires" and
"Acquisition" shall have correlative meanings.

         Beneficial Ownership means ownership of Stock by a Person who would be
treated as an owner of such Stock either directly or constructively through the
application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of
the Code. The terms "Beneficial Owner," "Beneficially Owns," "Beneficially Own"
and "Beneficially Owned" shall have correlative meanings.

         Beneficiary means the beneficiary of the Trust as determined pursuant
to Section 9.13(e)(1) hereof.

         Common Stock Ownership Limit means, with respect to any class of Common
Stock, 9.8% of the outstanding Common Stock, subject to adjustment pursuant to
Section 9.10 (but not more than 9.8% of the outstanding Common Stock, as so
adjusted) and to any other limitations contained in this Article 9. The Common
Stock Ownership Limit may be based on either the number of shares of Common
Stock or the value of such stock, whichever is more restrictive.

         Constructive Ownership Equity means ownership of Stock by a Person who
could be treated as an owner of such Stock, either actually or constructively,
directly or indirectly, through the application of Section 318 of the Code, as
modified by Section 856(d)(5) thereof. The terms "Constructive Owner,"
"Constructively Owns," "Constructively Own" and "Constructively Owned" shall
have correlative meanings.

         Market Price means, on any date, the average of the Closing Price for
the five consecutive Trading Days ending on such date. The "Closing Price" on
any date shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the Stock is not listed or admitted to trading on the
NYSE, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Stock is listed or admitted to trading or, if the Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price, or if not so quoted, the average of the high bid and low asked
prices in the Nasdaq/NMS market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotations system that may then be
in use or, if the Stock is not quoted by any such organization, as determined in
good faith by the Board of Directors.

         Ownership Limit means the Common Stock Ownership Limit or the Preferred
Stock Ownership Limit, or both, as the context may require.

                                       26


         Preferred Stock Ownership Limit means, with respect to the Preferred
Stock, 9.8% of the outstanding Stock of a particular series of Preferred Stock
of the Company, subject to adjustment pursuant to Section 9.10 (but not more
than 9.8% of any outstanding series of Preferred Stock, as so adjusted) and to
any other limitations contained in this Article 9. The Preferred Stock Ownership
Limit may be based on either the number of shares of Common Stock or the value
of such stock, whichever is more restrictive.

         Purported Beneficial Holder means, with respect to any purported
Transfer or Acquisition or other event or transaction which results in
Stock-in-Trust, the Person for whom the applicable Purported Record Holder held
the shares of Stock that were, pursuant to this Article 9, automatically
transferred to the Trust upon the occurrence of such event or transaction. The
Purported Beneficial Holder and the Purported Record Holder may be the same
Person.

         Purported Beneficial Transferee means, with respect to any purported
Transfer or Acquisition or other event or transaction which results in
Stock-in-Trust, the purported beneficial transferee for whom the Purported
Record Transferee would have acquired Stock if such Transfer or Acquisition
which results in Stock-in-Trust had been valid under Section 9.2. The Purported
Beneficial Transferee and the Purported Record Transferee may be the same
Person.

         Purported Record Holder means, with respect to any purported Transfer
or Acquisition or other event or transaction which results in Stock-in-Trust,
the record holder of the shares of Stock that were, pursuant to Section 9.3,
automatically deemed to be Stock-in-Trust upon the occurrence of such an event
or transaction. The Purported Record Holder and the Purported Beneficial Holder
may be the same Person.

         Purported Record Transferee means, with respect to any purported
Transfer or Acquisition or other event or transaction which results in
Stock-in-Trust, the record holder of the Stock if such Transfer or Acquisition
which results in Stock-in-Trust had been valid under Section 9.2. The Purported
Record Transferee and the Purported Beneficial Transferee may be the same
Person.

         Restriction Termination Date means the first day after the date of the
closing of the Initial Public Offering on which the Board of Directors of the
Company, pursuant to Section 3.3 hereof, determines that it is no longer in the
best interests of the Company to attempt or continue to qualify as a REIT.

         Stock-in-Trust means those shares of Stock that are automatically
transferred to the Trust as a result of a purported Transfer, Acquisition,
change in the capital structure of the Company, other purported change in the
Beneficial or Constructive Ownership of Stock or other event or transaction as
described in Section 9.3.

         Trading Day means a day on which the principal national securities
exchange on which the affected class or series of Stock is listed or admitted to
trading is open for the transaction of business or, if the affected class or
series of Stock is not so listed or admitted to trading, shall mean any day
other than a Saturday, Sunday or other day on which banking institutions in the
State of New York are authorized or obligated by law or executive order to
close.

         Transfer means any sale, transfer, gift, hypothecation, assignment,
devise or other disposition of a direct or indirect interest in Stock or the
right to vote or receive dividends on Stock, including without limitation (i)
the granting of any option (including any option to acquire an option or any
series of such options) or entering into any agreement for the sale, transfer or
other disposition of Stock or the right to vote or receive dividends on Stock or
(ii) the sale, transfer, assignment or other disposition of any securities or
rights convertible into or exchangeable for Stock, whether voluntary or
involuntary, of record, constructively or beneficially, and whether by operation
of law or otherwise. The terms "Transfers," "Transferred" and "Transferable"
shall have correlative meanings.

         Trust means the trust created pursuant to Section 9.13(a) hereof.

         Trustee means the trustee of the Trust, as appointed by the Company or
any successor trustee thereof, which Trustee shall not be an Affiliate of the
Company or of the Purported Record Holder, the Purported Beneficial Holder, the
Purported Record Transferee, or the Purported Beneficial Transferee.

                                       27


         Section 9.2 Ownership and Transfer Limitations.

                  (a) Notwithstanding any other provision of the Charter, except
as provided in Section 9.9 and subject to Section 9.15, from the first closing
date of the Initial Public Offering and prior to the Restriction Termination
Date, no Person shall Beneficially or Constructively Own Stock in excess of the
Common or Preferred Stock Ownership Limits. Notwithstanding any other provisions
of these Articles of Incorporation, subject to Section 9.14, from the first
closing date of the Initial Public Offering and prior to the Restriction
Termination Date, the Stock shall not be beneficially owned by fewer than 100
Persons (determined without reference to any rules of attribution).

                  (b) Notwithstanding any other provision of these Articles of
Incorporation, except as provided in Section 9.9(a) and subject to Section 9.15,
from the first closing date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer, Acquisition, change in the capital
structure of the Company, other purported change in Beneficial or Constructive
Ownership of Stock or other event or transaction that, if effective, would
result in any Person Beneficially or Constructively Owning Stock in excess of
the Common or Preferred Stock Ownership Limits shall be void ab initio as to the
Transfer, Acquisition, change in the capital structure of the Company, other
purported change in Beneficial or Constructive Ownership or other event or
transaction with respect to that number of shares of Stock which would otherwise
be Beneficially or Constructively Owned by such Person in excess of the Common
or Preferred Stock Ownership Limits, and none of the Purported Beneficial
Transferee, the Purported Record Transferee, the Purported Beneficial Holder or
the Purported Record Holder shall acquire any rights in that number of such
shares.

                  (c) Notwithstanding any other provision of these Articles of
Incorporation, subject to Section 9.15, from the first closing date of the
Initial Public Offering and prior to the Restriction Termination Date, any
Transfer, Acquisition, change in the capital structure of the Company, or other
purported change in Beneficial or Constructive Ownership (including actual
ownership) of Stock or other event or transaction that, if effective, would
result in the Stock being actually owned by fewer than 100 Persons (determined
without reference to any rules of attribution) shall be void ab initio as to the
Transfer, Acquisition, change in the capital structure of the Company, other
purported change in Beneficial or Constructive Ownership (including actual
ownership) or other event or transaction with respect to that number of shares
of Stock which otherwise would be owned (determined without reference to any
rules of attribution) by the transferee, and the intended transferee or
subsequent owner (including a Beneficial Owner or Constructive Owner) shall
acquire no rights in such shares of Stock.

                  (d) Notwithstanding any other provision of these Articles of
Incorporation, subject to Section 9.15, from the first closing date of the
Initial Public Offering and prior to the Restriction Termination Date, any
Transfer, Acquisition, change in the capital structure of the Company, other
purported change in Beneficial or Constructive Ownership of Stock or other event
or transaction that, if effective, would cause the Company to fail to qualify as
a REIT by reason of being "closely held" within the meaning of Section 856(h) of
the Code shall be void ab initio as to the Transfer, Acquisition, change in the
capital structure of the Company, other purported change in Beneficial or
Constructive Ownership or other event or transaction with respect to that number
of shares of Stock which would cause the Company to be "closely held" within the
meaning of Section 856(h) of the Code, and none of the Purported Beneficial
Transferee, the Purported Record Transferee, the Purported Beneficial Holder or
the Purported Record Holder shall acquire any rights in such shares of Stock.

                  (e) Notwithstanding any other provision of these Articles of
Incorporation, subject to Section 9.15, from the first closing date of the
Initial Public Offering and prior to the Restriction Termination Date, any
Transfer, Acquisition, change in capital structure of the Company, or other
purported change in Beneficial or Constructive Ownership of Stock or other event
or transaction that, if effective, would cause the Company to Constructively Own
9.8% or more of the ownership interests in a tenant of the real property of the
Company, the Operating Partnership or any direct or indirect subsidiary
(including, without limitation, partnerships, joint ventures and limited
liability companies) of the Company or the Operating Partnership (a
"Subsidiary"), within the meaning of Section 856(d)(2)(B) of the Code or
otherwise, directly or indirectly, would cause the Company to fail to qualify as
a REIT, shall be void AB INITIO as to the Transfer, Acquisition, change in
capital structure of the Company, other purported change in Beneficial or
Constructive Ownership or other event or transaction with respect to that number
of shares of Stock which would cause the Company to Constructively Own 9.8% or
more of the ownership interests in a tenant of the Company's, the Operating
Partnership's or a Subsidiary's real property, within the meaning of Section
856(d)(2)(B) of the Code, or otherwise, directly or indirectly, would cause the
Company to fail

                                       28


to qualify as a REIT, and none of the Purported Beneficial Transferee, the
Purported Record Transferee, the Purported Beneficial Holder or the Purported
Record Holder shall acquire any rights such shares of Stock.

                  (f) Notwithstanding any other provision of these Articles of
Incorporation, subject to Section 9.16, from the first closing date of the
Initial Public Offering and prior to the Restriction Termination Date, any
Transfer, Acquisition, change in the capital structure of the Company, other
purported change in Beneficial or Constructive Ownership of Stock or other event
or transaction that, if effective, would cause the Company to fail to qualify as
a REIT by reason of the fact that such Transfer, Acquisition, change in the
capital structure of the Company, other purported change in Beneficial or
Constructive Ownership of Stock or other event or transaction violates any
applicable jurisdiction's securities laws or regulations shall be void ab initio
as to the Transfer, Acquisition, change in the capital structure of the Company,
other purported change in Beneficial or Constructive Ownership or other event or
transaction with respect to such Stock and none of the Purported Beneficial
Transferee, the Purported Record Transferee, the Purported Beneficial Holder or
the Purported Record Holder shall acquire any rights in that number of shares of
Stock.

         Section 9.3 Transfer of Shares to Trust.

                  (a) If, notwithstanding the other provisions contained in this
Article 9, at any time from the first closing date of the Initial Public
Offering and prior to the Restriction Termination Date, there is a purported
Transfer or Acquisition or a change in the capital structure of the Company,
other purported change in the Beneficial or Constructive Ownership of Stock or
other event or transaction such that any Person would either Beneficially or
Constructively Own Stock in excess of the Common or Preferred Stock Ownership
Limit, then, except as otherwise provided in Section 9.9, such shares of Stock
(rounded up to the next whole number of shares) in excess of the Common or
Preferred Stock Ownership Limit automatically shall be transferred to the Trust.
Such transfer to the Trust shall be effective as of the close of business on the
business day next preceding the date of the purported Transfer or Acquisition or
change in capital structure, other purported change in Beneficial or
Constructive Ownership of Stock, or other event or transaction.

                  (b) If, notwithstanding the other provisions contained in this
Article 9, at any time from the first closing date of the Initial Public
Offering and prior to the Restriction Termination Date, there is a purported
Transfer or Acquisition or a change in the capital structure of the Company,
other purported change in the Beneficial or Constructive Ownership of Stock or
other event or transaction which, if effective, would result in a violation of
any of the restrictions described in paragraphs (c), (d), (e) and (f) of Section
9.2, or otherwise, directly or indirectly, would cause the Company to fail to
qualify as a REIT, then the shares of Stock (rounded up to the next whole number
of shares) purportedly being Transferred or Acquired or which are otherwise
affected by the change in capital structure or other purported change in
Beneficial or Constructive Ownership or other event or transaction and which, in
any case, would result in a violation of any of the restrictions described in
paragraphs (c), (d), (e) and (f) of Section 9.2 or otherwise would cause the
Company to fail to qualify as a REIT automatically shall be transferred to the
Trust. Such transfer to the Trust shall be effective as of the close of business
on the business day prior to the date of the purported Transfer or Acquisition
or change in capital structure, other purported change in Beneficial or
Constructive Ownership or other event or transaction.

         Section 9.4 Remedies for Breach. If the Board of Directors or its
designee shall at any time determine in good faith that a purported Transfer,
Acquisition, change in the capital structure of the Company or other purported
change in Beneficial or Constructive Ownership or other event or transaction has
taken place in violation of Section 9.2 or in violation of any securities law or
regulations of any applicable jurisdiction, or that a Person intends to Acquire
or has attempted to Acquire Beneficial or Constructive Ownership of any Stock in
violation of this Article 9 (whether or not such violation is intended), the
Board of Directors or its designee shall take such action as it deems advisable
to refuse to give effect to or to prevent such Transfer, Acquisition, change in
the capital structure of the Company, other attempt to Acquire Beneficial or
Constructive Ownership of any Stock or other event or transaction, including,
but not limited to, causing the Company to redeem shares, refusing to give
effect thereto on the books of the Company or instituting injunctive proceedings
with respect thereto; provided, however, that any Transfer, Acquisition, change
in the capital structure of the Company, attempted Transfer or other attempt to
Acquire Beneficial or Constructive Ownership of any Stock or other event or
transaction in violation of paragraphs (b), (c), (d) and (e) of Section 9.2 (as
applicable) shall be void ab initio and where applicable automatically shall
result in the transfer to the Trust described in Section 9.3, irrespective of
any action (or inaction) by the Board of Directors or its designee.

                                       29


         Section 9.5 Notice of Restricted Transfer. Any Person who acquires or
attempts to Acquire Beneficial or Constructive Ownership of Stock in violation
of Section 9.2 and any Person who Beneficially or Constructively Owns
Stock-in-Trust as a transferee of Stock resulting in a transfer of Stock to the
Trust, pursuant to Section 9.3, or otherwise shall immediately give written
notice to the Company, or, in the event of a proposed or attempted Transfer,
Acquisition, or purported change in Beneficial or Constructive Ownership, shall
give at least fifteen (15) days prior written notice to the Company, of such
event and shall promptly provide to the Company such other information as the
Company, in its sole discretion, may request in order to determine the effect,
if any, of such Transfer, proposed or attempted Transfer, Acquisition, proposed
or attempted Acquisition or purported change in Beneficial or Constructive
Ownership on the Company's status as a REIT.

         Section 9.6 Owners Required to Provide Information. From the date of
the Initial Public Offering and prior to the Restriction Termination Date:

                  (a) Every Beneficial or Constructive Owner of more than five
percent (5%), or such lower percentages as determined pursuant to regulations
under the Code or as may be requested by the Board of Directors, in its sole
discretion, of the outstanding shares of any class or series of Stock of the
Company shall annually, no later than January 30 of each calendar year, give
written notice to the Company stating (i) the name and address of such
Beneficial or Constructive Owner; (ii) the number of shares of each class or
series of Stock Beneficially or Constructively Owned; and (iii) a description of
how such shares are held. Each such Beneficial or Constructive Owner promptly
shall provide to the Company such additional information as the Company, in its
sole discretion, may request in order to determine the effect, if any, of such
Beneficial or Constructive Ownership on the Company's status as a REIT and to
ensure compliance with the Common or Preferred Stock Ownership Limit and other
restrictions set forth herein.

                  (b) Each Person who is a Beneficial or Constructive Owner of
Stock and each Person (including the Stockholder of record) who is holding Stock
for a Beneficial or Constructive Owner promptly shall provide to the Company
such information as the Company, in its sole discretion, may request in order to
determine the Company's status as a REIT, to comply with the requirements of any
taxing authority or other governmental agency, or to determine any such
compliance or to ensure compliance with the Common or Preferred Stock Ownership
Limits and other restrictions set forth herein.

         Section 9.7 Remedies Not Limited. Subject to Section 9.15, nothing
contained in this Article 9 shall limit the scope or application of the
provisions of Sections 9.1 through 9.12, the ability of the Company to implement
or enforce compliance with the terms hereof or the authority of the Board of
Directors to take any such other action or actions as it may deem necessary or
advisable to protect the Company and the interests of its Stockholders by
preservation of the Company's status as a REIT and to ensure compliance with the
Ownership Limit for any class or series of Stock and other restrictions set
forth herein, including, without limitation, refusal to give effect to a
transaction on the books of the Company.

         Section 9.8 Ambiguity. In the case of an ambiguity in the application
of any of the provisions of this Article 9, including any definition contained
in Sections 1.6 and 9.1, the Board of Directors shall have the power and
authority, in its sole discretion, to determine the application of the
provisions of this Article 9 with respect to any situation based on the facts
known to it. In the event Section 9.2, 9.3 or 9.4 requires an action by the
Board of Directors and the Charter fails to provide specific guidance with
respect to such action, the Board of Directors shall have the power to determine
the action to be taken so long as such action is not contrary to the provisions
of Sections 9.1, 9.2, 9.3 or 9.4. Absent a decision to the contrary by the Board
of Directors (which the Board may make in its sole and absolute discretion), if
a Person would have (but for the remedies set forth in Section 9.2) acquired
Beneficial or Constructive Ownership of Stock in violation of Section 9.2, such
remedies (as applicable) shall apply first to the shares of Stock which, but for
such remedies, would have been Beneficially Owned or Constructively Owned (but
not actually owned) by such Person, pro rata among the Persons who actually own
such shares of Stock based upon the relative number of the shares of Stock held
by each such Person.

         Section 9.9 Waivers by Board. Upon notice of an Acquisition or Transfer
or a proposed Acquisition or Transfer which results or would result in the
intended transferee having Beneficial Ownership of shares in excess of the
Ownership Limit, the Board of Directors may, upon receipt of evidence deemed to
be satisfactory by the Board of Directors, in its sole discretion, that such
Acquisition or Transfer does not or will not violate the "closely held"
provisions of Section 856(h) of the Code or otherwise cause the Company to fail
to qualify as a REIT, waive the Ownership Limit with respect to such transferee
upon such conditions as the Board of Directors may direct.

                                       30


         Section 9.10 Increase and Decrease in Common or Preferred Stock
Ownership Limit. Subject to the limitations contained in Section 9.11, the Board
of Directors may from time to time increase the Common or Preferred Stock
Ownership Limits for any Person and decrease the Common or Preferred Stock
Ownership Limits for all other Persons; provided, however, that the decreased
Common or Preferred Stock Ownership Limit will not be effective for any Person
whose percentage ownership in Stock is in excess of such decreased Common or
Preferred Stock Ownership Limit until such time as such Person's percentage of
Stock equals or falls below the decreased Common or Preferred Stock Ownership
Limit, but any further acquisition of Stock in excess of such percentage
ownership of Stock will be in violation of the Common or Preferred Stock
Ownership Limit and, provided further, that the new Common or Preferred Stock
Ownership Limit would not allow five or fewer Persons to Beneficially Own more
than 49.9% in value of the outstanding Stock.

         Section 9.11 Limitation on Modifications.

                  (a) The Ownership Limit for a class or series of Stock may not
be increased and no additional ownership limitations may be created if, after
giving effect to such increase or creation, the Company would be "closely held"
within the meaning of Section 856(h) of the Code.

                  (b) Prior to any modification of the Ownership Limit with
respect to any Person, the Board of Directors may require such opinions of
counsel, affidavits, undertakings or agreements as it may deem necessary,
advisable or prudent, in its sole discretion, in order to determine or ensure
the Company's status as a REIT.

                  (c) Neither the Preferred Stock Ownership Limit nor the Common
Stock Ownership Limit may be increased to a percentage that is greater than
9.8%.

         Section 9.12 Notice to Stockholders Upon Issuance or Transfer. Upon
issuance or transfer of Stock, the Company shall provide the recipient with a
notice containing information about the shares purchased or otherwise
transferred, in lieu of issuance of a share certificate, in a form substantially
similar to the following:

              "The securities issued or transferred are subject to restrictions
              on transfer and ownership for the purpose of maintenance of the
              Company's status as a real estate investment trust (a "REIT")
              under Sections 856 through 860 of the Internal Revenue Code of
              1986, as amended (the "Code"). Except as otherwise provided
              pursuant to the Articles of Incorporation of the Company, no
              Person may (i) Beneficially or Constructively Own any class of
              Common Stock of the Company in excess of 9.8% (or such greater
              percent as may be determined by the Board of Directors of the
              Company) in number of shares or value, whichever is more
              restrictive, of such outstanding Common Stock; (ii) Beneficially
              or Constructively Own shares of any series of Preferred Stock of
              the Company in excess of 9.8% (or such greater percent as may be
              determined by the Board of Directors of the Company) in number of
              shares or value, whichever is more restrictive, of the outstanding
              shares of such series of Preferred Stock; (iii) Beneficially or
              Constructively Own Common Stock or Preferred Stock (of any class
              or series) which would result in the Company being "closely held"
              under Section 856(h) of the Code; (iv) Beneficially or
              Constructively Own Common Stock or Preferred Stock that would
              cause the Company to Constructively Own 9.8% or more of the
              ownership interests in a tenant of the Company's, the Operating
              Partnership's or a Subsidiary's real property, within the meaning
              of Section 856(d)(2)(B) of the Code or which otherwise would cause
              the Company to fail to qualify as a REIT; or (v) Beneficially or
              Constructively own Common Stock or Preferred Stock that would
              cause the Company to fail to qualify as a REIT by reason of a
              violation of an applicable jurisdiction's securities laws or
              regulations. No Person may Transfer shares of Stock if such
              Transfer would result in the Stock being owned by fewer than 100
              Persons. Any Person who has Beneficial or Constructive Ownership,
              or who Acquires or attempts to Acquire Beneficial or Constructive
              Ownership of Common Stock and/or Preferred Stock in excess of the
              above limitations and any Person who Beneficially or
              Constructively Owns Stock-in-Trust as a transferee of Common

                                       31


              or Preferred Stock resulting in a transfer of Stock to the Trust
              (as described below) immediately must notify the Company in
              writing or, in the event of a proposed or attempted Transfer or
              Acquisition or purported change in Beneficial or Constructive
              Ownership, must give written notice to the Company at least 15
              days prior to the proposed or attempted transfer, transaction or
              other event. Any Transfer or Acquisition of Common Stock and/or
              Preferred Stock or other event which results in a violation of the
              ownership or transfer limitations set forth in the Company's
              Articles of Incorporation shall be void ab initio and none of the
              Purported Beneficial or Record Transferees or the purported
              Beneficial or Record Holders shall have or acquire any rights in
              such Common Stock and/or Preferred Stock. If the transfer and
              ownership limitations referred to herein are violated, the Common
              Stock or Preferred Stock represented hereby automatically will be
              transferred to the Trust and deemed to be Stock-in-Trust to the
              extent of violation of such limitations, and such Stock-in-Trust
              will be held in trust by a trustee appointed by the Company, all
              as provided by the Articles of Incorporation of the Company. In
              addition, the Company may redeem shares upon the terms and
              conditions specified by the Board of Directors in its sole
              discretion if the Board of Directors determines that ownership or
              a Transfer or Acquisition or other event may violate the
              restrictions described above. All defined terms used in this
              legend have the meanings identified in the Company's Articles of
              Incorporation, as the same may be amended from time to time, a
              copy of which, including the restrictions on transfer, will be
              sent without charge to each Stockholder who so requests."

         Section 9.13 Stock-In-Trust.

                  (a) Ownership in Trust. Upon any purported Transfer or
Acquisition or a change in the capital structure of the Company, other purported
change in Beneficial or Constructive Ownership or event or transaction that
results in Stock-in-Trust pursuant to Section 9.3, such Stock-in-Trust shall be
deemed to have been transferred to a trust ("Trust") for the exclusive benefit
of the Beneficiary. Stock-in-Trust so held in trust shall be issued and
outstanding stock of the Company. The Purported Record Transferee or Purported
Record Holder shall have no rights in such Stock-in-Trust except as provided in
Section 9.13(c) and Section 9.13(e).

                  (b) Distribution Rights. Stock-in-Trust shall be entitled to
the same rights and privileges as all other shares of the same class or series.
The Trustee will receive all distributions and Dividends on the Stock-in-Trust
and will hold such Dividends and distributions in trust for the benefit of the
Beneficiary. Any Dividend or distribution with a record date on or after the
date that Stock becomes Stock-in-Trust which were paid on such Stock to the
Purported Record Transferee or to the Purported Record Holder shall be repaid to
the Trust, and any such Dividend or distribution declared on such Stock but
unpaid shall be paid to the Trustee to hold in trust for the benefit of the
Beneficiary. The Company shall take all measures that it determines are
reasonably necessary to recover the amount of any such dividend or Distribution
paid to the Purported Record Transferee or Purported Record Holder, including,
if necessary, withholding any portion of future Dividends or distributions
payable on Stock Beneficially Owned or Constructively Owned by such Persons and,
as soon as reasonably practicable following the Company's receipt or withholding
thereof, paying over to the Trust for the benefit of the Beneficiary the
Dividends so received or withheld, as the case may be.

                  (c) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any other distribution of
the assets, of the Company, each holder of Stock-in-Trust resulting from the
transfer to the Trust of any specified class or series shall be entitled to
receive, ratably with each other holder of Stock-in-Trust resulting from the
transfer to the Trust of such class or series and each holder of Stock of such
class or series, that portion of the remaining assets of the Company, as are due
to holders of Preferred Stock of such series or available for distribution to
the holders of such class of Common Stock, as applicable.

         The Trustee shall distribute to the Purported Record Transferee or
Purported Record Holder the amounts received upon such liquidation, dissolution,
winding up or distribution, provided that the Purported Record Transferee or
Purported Record Holder shall not be entitled to receive amounts pursuant to
this Section 9.13(c) in

                                       32


excess of the price per share in the transaction that created such
Stock-in-Trust (or, in the case of a gift or devise, the Market Price per share
on the date of such transfer). Any remaining amounts shall be distributed to the
Beneficiary.

                  (d) Voting Rights. The Trustee shall be entitled to vote the
Stock-in-Trust on any matters on which holders of Stock of the same class or
series are entitled to vote (except as required otherwise by the MGCL). Any vote
taken with respect to shares of Stock prior to the discovery by the Company that
such shares of Stock have become Stock-in-Trust shall, subject to applicable
law, be rescinded and be void ab initio and be recast by the Trustee, in its
sole and absolute discretion, provided that if the Company has already taken
irreversible corporate action based on such vote, then the Trustee shall not
have the authority to rescind and recast such vote. The Purported Record
Transferee or Purported Record Holder shall be deemed to have given, as of the
date of the transfer of such Stock to the Trust pursuant to Section 9.3, an
irrevocable proxy to the Trustee to vote the Stock-in-Trust in the manner in
which the Trustee, in its sole and absolute discretion, desires.

                  (e) Restrictions on Transfer; Designation of Beneficiary;
Sales of Stock-in-Trust.

                           (1) Except as described in this Section 9.13(e) and
in Section 9.13(c), Stock-in-Trust shall not be transferable. The Beneficiary
shall be one or more charitable organizations that is described in Section
501(c)(3), 170(b)(1)(A) or 170(c)(2) of the Code named by the Company within
five (5) days after the Trust is established. However, for purposes of sales by
the Trustee as set forth herein, the Trustee shall designate a permitted
transferee of the Stock represented by such Stock-in-Trust provided that the
transferee (i) purchases such Stock for valuable consideration and (ii) acquires
such Stock without such acquisition resulting in another automatic transfer of
Stock into the Trust. If the Company does not purchase the Stock-in-Trust, the
Trustee shall (i) sell that number of shares of Stock represented by such
Stock-in-Trust to the permitted transferee, (ii) cause to be recorded on the
books of the Company that the permitted transferee is the holder of record of
such number of shares of Stock and (iii) cause the Stock-in-Trust to be
canceled.

                           (2) In the event of a sale by the Trustee of the
Stock represented by such Stock-in-Trust, the Purported Record Transferee or
Purported Record Holder shall receive from the Trustee a per share price equal
to the lesser of (i) the price per share in the transaction that created such
Stock-in-Trust (or, in the case of a gift or devise, the Market Price per share
on the date of such transfer) and (ii) the price per share received by the
Trustee, provided that such price per share shall be net of any commissions and
other expenses of the sale. The Trustee may reduce the amount payable to the
Purported Record Transferee or Purported Record Holder by the amount of
Dividends and distributions which have been paid to the Purported Record
Transferee or Purported Record Holder and are owed by the Purported Record
Transferee or Purported Record Holder to the Trustee pursuant to Section
9.13(b). The proceeds shall be sent to such Person within five business days
after the closing of such sale transaction.

                           (3) All Stock-in-Trust will be deemed to have been
offered for sale to the Company, or its designee, and the Company will have the
right to accept such offer for a period of twenty (20) days after the later of
(i) the date of the purported Transfer or Acquisition or a change in the capital
structure of the Company, other purported change in Beneficial or Constructive
Ownership or event or transaction which resulted in such Stock-in-Trust and (ii)
the date the Company determines in good faith that a purported Transfer or
Acquisition or a change in the capital structure of the Company, other purported
change in Beneficial or Constructive Ownership or event or transaction resulting
in such Stock-in-Trust occurred, if the Company does not receive a notice
pursuant to Section 9.5. If the Company accepts the offer to purchase such
Stock-in-Trust, the purchase price per share shall be equal to the lesser of (i)
the price per share in the transaction that created such Stock-in-Trust (or, in
the case of a gift or devise, the Market Price at the time of such gift or
devise) and (ii) the Market Price on the date the Company, or its designee,
accepts such offer.

                           (4) Any amounts received by the Trustee in excess of
the amounts paid to the Purported Record Transferee or Purported Record Holder
shall be distributed to the Beneficiary.

         Section 9.14 Remedies Not Limited. Subject to Section 9.15, nothing
contained in this Article 9 shall limit the scope or application of the
provisions of Section 9.13, the ability of the Company to implement or enforce
compliance with the terms hereof or the authority of the Board of Directors to
take any such other action or actions as it may deem necessary or advisable to
protect the Company and the interests of its Stockholders by preservation of the
Company's status as a REIT and to ensure compliance with the applicable
Ownership Limits and the other

                                       33


restrictions set forth herein, including, without limitation, refusal to give
effect to a transaction on the books of the Company.

         Section 9.15 Settlements. Nothing in this Article 9 shall preclude the
settlement of any transaction with respect to the Stock entered into through the
facilities of the New York Stock Exchange or other national securities exchange
on which the Stock are listed. The fact that the settlement of any transaction
occurs shall not negate the effect of any other provisions of this Article 9 and
any transferee in such a transaction shall be subject to all of the provision
and limitations set forth in such Sections.

         Section 9.16 Severability. If any provision of this Article 9 or any
application of any such provision is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the validity and
enforceability of the remaining provisions of this Article 8 shall not be
affected and other applications of such provision shall be affected only to the
extent necessary to comply with the determination of such court.

         Section 9.17 Waiver. The Company shall have authority at any time to
waive the requirements that Stock be transferred to the Trust in accordance with
the provisions of this Article 9 if the Company determines, based on an opinion
of nationally recognized tax counsel, that such transfer of Stock to a trust,
would jeopardize the status of the Company as a REIT (as that term is defined in
Section 1.6).

                                   ARTICLE 10
                                  STOCKHOLDERS

          Section 10.1 Meetings of Stockholders. There shall be an annual
meeting of the Stockholders, to be held at such time and place as shall be
determined by or in the manner prescribed in the Bylaws, at which the Directors
shall be elected and any other proper business may be conducted. The annual
meeting will be held on a date which is a reasonable period of time following
the distribution of the Company's annual report to Stockholders but not less
than thirty (30) days after delivery of such report. Stockholders who are
entitled to cast a majority of all votes and who are present in person or by
proxy at an annual meeting at which a quorum is present, may, without the
necessity for concurrence by the Directors, vote to elect the Directors. A
quorum shall be 50% of the then outstanding Shares. Special meetings of
Stockholders may be called in the manner provided in the Bylaws, including by
the chief executive officer, by a majority of the Independent Directors or by a
majority of the Directors, and shall be called by an officer of the Company upon
written request of Stockholders holding in the aggregate not less than ten
percent (10%) of the outstanding Stock entitled to vote on any issue proposed to
be considered at any such special meeting. Upon receipt of a written request,
either in person or by mail, stating the purpose(s) of the meeting, the sponsor
shall provide all Stockholders within ten (10) days after receipt of said
request, written notice, either in person or by mail, of a meeting and the
purpose of such meeting to be held on a date not less than fifteen (15) nor more
than sixty (60) days after the distribution of such notice, at a time and place
specified in the request, or if none is specified, at a time and place
convenient to the Stockholders. If there are no Directors, the officers of the
Company shall promptly call a special meeting of the Stockholders entitled to
vote for the election of successor Directors. Any meeting may be adjourned and
reconvened as the Directors determine or as provided by the Bylaws.

         Section 10.2 Voting Rights of Stockholders. Subject to the provisions
of any class or series of Stock then outstanding and the mandatory provisions of
any applicable laws or regulations, the Stockholders shall be entitled to vote
only on the following matters: (a) election or removal of Directors, without the
necessity for concurrence by the Directors, as provided in Sections 10.1, 2.4
and 2.7 hereof; (b) amendment of the Charter, without the necessity for
concurrence by the Directors, as provided in Section 12.1 hereof; (c)
dissolution of the Company, without the necessity for concurrence by the
Directors; (d) reorganization of the Company as provided in Section 12.2 hereof;
(e) merger, consolidation or sale or other disposition of all or substantially
all of the Property, as provided in Section 12.3 hereof; and (f) such other
matters with respect to which the Board of Directors has adopted a resolution
declaring that a proposed action is advisable and directing that the matter be
submitted to the Stockholders for approval or ratification. Except with respect
to the foregoing matters, no action taken by the Stockholders at any meeting
shall in any way bind the Board.

         Section 10.3 Voting Limitations on Stock Held by the Advisor, Directors
and Affiliates. With respect to Stock owned by the Advisor, the Directors, or
any of their Affiliates, neither the Advisor, nor the Directors, nor any of
their Affiliates may vote or consent on matters submitted to the Stockholders
regarding the removal of the Advisor, Directors or any of their Affiliates or
any transaction between the Company and any of them. In

                                       34


determining the requisite percentage in interest of Stock necessary to approve a
matter on which the Advisor, Directors and any of their Affiliates may not vote
or consent, any Stock owned by any of them shall not be included.

         Section 10.4 Right of Inspection. Any Stockholder and any designated
representative thereof shall be permitted access, without charge, to all records
of the Company at all reasonable times. Any Stockholder and any designated
representative thereof may inspect and copy any of such records upon the payment
of reasonable copying charges. Inspection of the Company books and records by
the office or agency administering the securities laws of a jurisdiction shall
be provided upon reasonable notice and during normal business hours.

         Section 10.5 Access to Stockholder List. An alphabetical list of the
names, addresses and telephone numbers of the Stockholders of the Company, along
with the number of Shares held by each of them (the "Stockholder List"), shall
be maintained as part of the books and records of the Company and shall be
available for inspection by any Stockholder or the Stockholder's designated
agent at the home office of the Company upon the request of the Stockholder. The
Stockholder List shall be updated at least quarterly to reflect changes in the
information contained therein. A copy of such list shall be mailed to any
Stockholder so requesting within ten (10) days of the request. The copy of the
Stockholder List shall be printed in alphabetical order, on white paper, and in
a readily readable type size (in no event smaller than 10-point type). The
Company may impose a reasonable charge for expenses incurred in reproduction
pursuant to the Stockholder request. A Stockholder may request a copy of the
Stockholder List in connection with matters relating to Stockholders' voting
rights, and the exercise of Stockholder rights under federal proxy laws.

         If the Advisor or Directors neglect or refuse to exhibit, produce or
mail a copy of the Stockholder List as requested, the Advisor and/or the
Directors shall be liable to any Stockholder requesting the list for the costs,
including attorneys' fees, incurred by that Stockholder for compelling the
production of the Stockholder List, and for actual damages suffered by any
Stockholder by reason of such refusal or neglect. It shall be a defense that the
actual purpose and reason for the requests for inspection or for a copy of the
Stockholder List is to secure such list of Stockholders or other information for
the purpose of selling such list or copies thereof, or of using the same for a
commercial purpose other than in the interest of the applicant as a Stockholder
relative to the affairs of the Company. The Company may require the Stockholder
requesting the Stockholder List to represent that the list is not requested for
a commercial purpose unrelated to the Stockholder's interest in the Company. The
remedies provided hereunder to Stockholders requesting copies of the Stockholder
List are in addition, to and shall not in any way limit, other remedies
available to Stockholders under federal law, or the laws of any state.

         Section 10.6 Reports. The Directors, including the Independent
Directors, shall take reasonable steps to insure that the Company shall cause to
be prepared and mailed or delivered to each Stockholder as of a record date
after the end of the fiscal year and each holder of other publicly held
securities of the Company within one hundred twenty (120) days after the end of
the fiscal year to which it relates an annual report for each fiscal year ending
after the initial public offering of its securities which shall include: (i)
financial statements prepared in accordance with generally accepted accounting
principles which are audited and reported on by independent certified public
accountants; (ii) the ratio of the costs of raising capital during the period to
the capital raised; (iii) the aggregate amount of advisory fees and the
aggregate amount of other fees paid to the Advisor and any Affiliate of the
Advisor by the Company and including fees or charges paid to the Advisor and any
Affiliate of the Advisor by third parties doing business with the Company; (iv)
the Operating Expenses of the Company, stated as a percentage of Average
Invested Assets and as a percentage of its NASAA Net Income and FFO; (v) a
report from the Independent Directors that the policies being followed by the
Company are in the best interests of its Stockholders and the basis for such
determination; (vi) separately stated, full disclosure of all material terms,
factors, and circumstances surrounding any and all transactions involving the
Company, Directors, Advisors, Sponsors and any Affiliate thereof occurring in
the year for which the annual report is made, and the Independent Directors
shall be specifically charged with a duty to examine and comment in the report
on the fairness of such transactions; and (vii) Dividends to the Stockholders
for the period, identifying the source of such Dividends, and if such
information is not available at the time of the distribution, a written
explanation of the relevant circumstances will accompany the Dividends (with the
statement as to the source of Dividends to be sent to Stockholders not later
than sixty (60) days after the end of the fiscal year in which the distribution
was made).

                                       35


                                   ARTICLE 11
          LIABILITY OF STOCKHOLDERS, DIRECTORS, ADVISORS AND AFFILIATES

         Section 11.1 Limitation of Stockholder Liability. No Stockholder shall
be liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Company by reason of his being a Stockholder, nor
shall any Stockholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the Company's assets or
the affairs of the Company by reason of his being a Stockholder.


         Section 11.2. Limitation of Director and Officer Liability. Provided
that the applicable conditions set forth under Maryland law or in Section 11.4
are met, no director or officer of the Company shall be liable to the Company or
its Stockholders for money damages. Neither the amendment nor repeal of this
Section 11.2, nor the adoption or amendment of any other provision of the
charter or bylaws inconsistent with this Section 11.2, shall apply to or affect
in any respect the applicability of the preceding sentence with respect to any
act or failure to act that occurred prior to such amendment, repeal or adoption.


         Section 11.3. Indemnification.

                  (a) Provided that the applicable conditions set forth under
Maryland law or in Section 11.4 are met, the Company shall indemnify and pay or
reimburse reasonable expenses in advance of the final disposition of a
proceeding to (i) any individual who is a present or former director or officer
of the Company; (ii) any individual who, while a director of the Company and at
the request of the Company, serves or has served as a director, officer, partner
or trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise from and against any claim or liability to
which such person may become subject or which such person may incur by reason of
his service in such capacity; or (iii) the Advisor or any of its Affiliates
acting as an agent of the Company and their respective officers, directors,
managers and employees. The Company shall have the power with the approval of
the Board of Directors to provide such indemnification and advancement of
expenses to any employee or agent of the Company.

                  (b) No amendment of the Charter or repeal of any of its
provisions shall limit or eliminate the right of indemnification or advancement
of expenses provided hereunder with respect to acts or omissions occurring prior
to such amendment or repeal.


         Section 11.4 Limitation on Indemnification. Notwithstanding the
foregoing, the Company shall not provide for indemnification of the directors or
the Advisor or its Affiliates for any liability or loss suffered by any of them,
unless all of the following conditions are met:

                  (a) The directors or the Advisor or its Affiliates have
determined, in good faith, that the course of conduct that caused the loss or
liability was in the best interests of the Company.

                  (b) The directors or the Advisor or its Affiliates were acting
on behalf of or performing services for the Company.

                  (c) Such liability or loss was not the result of:

                                       36


                           (1) negligence or misconduct by the directors
(excluding the Independent Directors) or the Advisor or its Affiliates; or

                           (2) gross negligence or willful misconduct by the
Independent Directors.

                  (d) Such indemnification or agreement to hold harmless is
recoverable only out of the Company's Net Asset Value and not from its
Stockholders.


                  (e) with respect to losses, liabilities or expenses arising
from or out of an alleged violation of federal or state securities laws, one or
more of the following conditions are met:



                           (1) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
particular indemnitee.



                           (2) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee.



                           (3) a court of competent jurisdiction approves a
settlement of the claims against a particular indemnitee and finds that
indemnification of the settlement and the related costs should be made, and the
court considering the request for indemnification has been advised of the
position of the Securities and Exchange Commission and of the published position
of any state securities regulatory authority in which securities of the Company
were offered or sold as to indemnification for violations of securities laws.


         Section 11.5 Limitation on Payment of Expenses. The Company shall pay
or reimburse reasonable legal expenses and other costs incurred by the directors
or the Advisors or its Affiliates in advance of the final disposition of a
proceeding only if (in addition to the procedures required by the MGCL) all of
the following are satisfied: (a) the proceeding relates to acts or omissions
with respect to the performance of duties or services on behalf of the Company,
(b) the legal proceeding was initiated by a third party who is not a Stockholder
or, if by a Stockholder acting in his or her capacity as such, a court of
competent jurisdiction approves such advancement and (c) the directors or the
Advisor or its Affiliates undertake to repay the amount paid or reimbursed by
the Company, together with the applicable legal rate of interest thereon, if it
is ultimately determined that the particular indemnitee is not entitled to
indemnification.

                                   ARTICLE 12
             AMENDMENT; REORGANIZATION; MERGER, ROLL-UP TRANSACTIONS

         Section 12.1 Amendment.

                  The Company reserves the right from time to time to make any
amendment to the Charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in the
Charter, of any outstanding shares of Stock. All rights and powers conferred by
the Charter on Stockholders, Directors and officers are granted subject to this
reservation. Except for those amendments permitted to be made without
stockholder approval under Maryland law or by specific provision in the Charter,
any amendment to the Charter shall be valid only if approved by the affirmative
vote of a majority of all votes entitled to be cast on the matter, including
without limitation, (i) any amendment which would change any rights with respect
to any outstanding class of securities, by reducing the amount payable thereon
upon liquidation, or by diminishing or eliminating any voting rights pertaining
thereto; (ii) any amendment of Section 12.2 hereof and this Section 12.1 (or any
other provision of these Articles of Incorporation the amendment of or addition
to which would have the effect of amending such sections); (iii) any amendment
of provisions relating to the removal of directors, Independent Directors,
Director qualifications, fiduciary duty, conflicts of interest, investment
policies or investment restrictions, preemptive rights of holders of Stock and
indemnification and limitation of liability of officers and directors and (iv)
any amendment that would impose cumulative voting in the election of directors.

         Section 12.2 Reorganization. Subject to the provisions of any class or
series of Stock at the time outstanding, the Directors shall have the power (i)
to cause the organization of a corporation, association, trust or other
organization to take over the Property and to carry on the affairs of the
Company, or (ii) merge the Company into, or sell, convey and transfer the
Property to any such corporation, association, trust or organization in exchange
for Securities thereof or beneficial interests therein, and the assumption by
the transferee of the liabilities of the Company, and upon the occurrence of (i)
or (ii) above dissolve the Company and deliver such Securities or beneficial
interests ratably among the Stockholders according to the respective rights of
the class or series of Stock held by them provided, however, that any such
action shall have been approved, at a meeting of the Stockholders called for
that purpose, by the affirmative vote of a majority of all votes entitled to be
cast on the matter.

         Section 12.3 Merger, Consolidation or Sale of Property. Subject to the
provisions of any class or series of Stock at the time outstanding, the
Directors shall have the power to (i) merge the Company with or into another
entity, (ii) consolidate the Company with one (1) or more other entities into a
new entity; (iii) sell or otherwise dispose of all or substantially all of the
Property; or (iv) dissolve or liquidate the Company, other than before the
initial investment in Property; provided, however, that such action shall have
been approved by the affirmative vote of a majority of all votes entitled to be
cast on the matter. Any such transaction involving an Affiliate of the Company
or the Advisor also must be approved by a majority of the Directors (including a
majority of the Independent Directors) not otherwise interested in such
transaction as fair and reasonable to the Company and on terms and conditions
not less favorable to the Company than those available from unaffiliated third
parties.

                                       37


         Section 12.4 Limitations on Roll-Up Transactions. In connection with
any proposed Roll-Up Transaction, an appraisal of all Assets shall be obtained
from a competent independent appraiser. The Assets shall be appraised on a
consistent basis, and the appraisal shall be based on the evaluation of all
relevant information and shall indicate the value of the Assets as of a date
immediately prior to the announcement of the proposed Roll-Up Transaction. The
appraisal shall assume an orderly liquidation of Assets over a 12-month period.
The terms of the engagement of the independent appraiser shall clearly state
that the engagement is for the benefit of the Company and the Stockholders. A
summary of the appraisal, indicating all material assumptions underlying the
appraisal, shall be included in a report to Stockholders in connection with a
proposed Roll-Up Transaction. In connection with a proposed Roll-Up Transaction,
the person sponsoring the Roll-Up Transaction shall offer to Stockholders who
vote against the proposed Roll-Up Transaction the choice of:

                  (a) accepting the securities of a Roll-Up Entity offered in
the proposed Roll-Up Transaction; or

                  (b) one of the following:

                           (1) remaining as Stockholders of the Company and
preserving their interests therein on the same terms and conditions as existed
previously; or

                           (2) receiving cash in an amount equal to the
Stockholder's pro rata share of the appraised value of the Assets of the
Company.

         The Company is prohibited from participating in any proposed Roll-Up
Transaction:

                  (c) which would result in the Stockholders having democracy
rights in a Roll-Up Entity that are less than the rights provided for in
Sections 10.1, 10.2, 10.5, 10.6 and 10.1 of these Articles of Incorporation;

                  (d) which includes provisions that would operate as a material
impediment to, or frustration of, the accumulation of shares by any purchaser of
the securities of the Roll-Up Entity (except to the minimum extent necessary to
preserve the tax status of the Roll-Up Entity), or which would limit the ability
of an investor to exercise the voting rights of its Securities of the Roll-Up
Entity on the basis of the number of Stock held by that investor;

                  (e) in which investor's rights to access of records of the
Roll-Up Entity will be less than those described in Sections 10.4 and 10.5
hereof; or

                  (f) in which any of the costs of the Roll-Up Transaction would
be borne by the Company if the Roll-Up Transaction is not approved by the
Stockholders.

                                   ARTICLE 13
                               DURATION OF COMPANY

          The Company shall continue perpetually unless dissolved pursuant to
the provisions contained herein or pursuant to any applicable provision of the
MGCL.

         THIRD: The amendment and restatement of the charter of the Company as
hereinabove set forth were duly advised by the Board of Directors and approved
by the Stockholder of the Company as required by law.

         FOURTH: The current address of the principal office of the Company is
as set forth in Section 1.4 of the foregoing amendment and restatement of the
Charter.

         FIFTH: The name and address of the Company's current resident agent are
as set forth in Section 1.2 of the foregoing amendment and restatement of the
Charter.

                                       38


         SIXTH: The number of directors of the Company and the names of those
currently in office are as set forth in Section 2.1 of the foregoing amendment
and restatement of the Charter.

         SEVENTH: The undersigned President acknowledges the foregoing amendment
and restatement of the Charter to be the corporate act of the Company and as to
all matters and facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties of perjury.

IN WITNESS WHEREOF, Cornerstone Core Properties REIT, Inc., has caused the
foregoing amendment and restatement of the Charter to be signed in its name and
on its behalf by its President and attested to by its Secretary on this ________
day of _________ , 2005.

                                                _______________________________
                                                TERRY G. ROUSSEL,
                                                President and Secretary

                                       39

EX-3.3

                                                                     EXHIBIT 3.3

                                    BYLAWS OF

                     CORNERSTONE CORE PROPERTIES REIT, INC.

                                    ARTICLE 1
                                     OFFICES

      1.1 PRINCIPAL OFFICE. The principal office of the Company in the State of
Maryland shall be located at such place as the Board of Directors may designate.

      1.2 ADDITIONAL OFFICES. The Company may have additional offices, including
a principal executive office, at such places as the Board of Directors may from
time to time determine or the business of the Company may require.

                                    ARTICLE 2
                            MEETINGS OF STOCKHOLDERS

      2.1 PLACE. All meetings of Stockholders shall be held at the principal
office of the Company or at such other place as shall be set by the Board of
Directors and stated in the notice of the meeting.

      2.2 ANNUAL MEETING. An annual meeting of the Stockholders for the election
of Directors and the transaction of any business within the powers of the
Company shall be held on a date and at the time set by the Board of Directors
during the month of May in each year.

      2.3 SPECIAL MEETINGS. Special meetings of the Stockholders may be called
by the President, a majority of the Board of Directors or a majority of the
Independent Directors (as defined in the charter of the Company), and shall be
called by an officer of the Company upon the written request of Stockholders
entitled to cast not less than ten percent of all the votes entitled to be cast
at such meeting. Such request shall state the purpose of such meeting and the
matters proposed to be acted on at such meeting. Within ten days after receipt
of such a written request, the secretary of the Company shall inform the
Stockholders who made such request of the reasonably estimated cost of preparing
and mailing notice of the meeting; and within ten days of his or her receipt of
payment of such costs the secretary shall give written notice of such meeting
and the purposes thereof to all Stockholders, with such meeting to be held not
less than 15 days nor more than 60 days after distribution of such notice. Such
meeting shall be at the time and place specified in the request, and if none is
specified, at a time and place convenient to Stockholders. If there are no
Directors, the officers of the Company shall promptly call a special meeting of
the Stockholders entitled to vote for the election of successor Directors.

      2.4 NOTICE. Except as provided otherwise in Section 2.3 of this Article 2
above for special meetings, not less than ten nor more than 90 days before each
meeting of Stockholders, the secretary shall give to each Stockholder not
entitled to vote who is entitled to notice of the meeting written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by any statute, the purpose for which
the meeting is called, either by mail, by presenting it to such Stockholder
personally, by leaving it at his residence or usual place of business or by any
other means permitted by Maryland law. If mailed, such notice shall be deemed to
be given when deposited in the United States mail addressed to the Stockholder
at his post office address as it appears on the records of the Company, with
postage thereon prepaid.

      2.5 SCOPE OF NOTICE. Subject to Section 2.12, any business of the Company
may be transacted at an annual meeting of Stockholders without being
specifically designated in the notice, except for such business as is required
by any statute to be stated in such notice. No business shall be transacted at a
special meeting of Stockholders except as specifically designated in the notice.



      2.6 ORGANIZATION AND CONDUCT. Every meeting of Stockholders shall be
conducted by an individual appointed by the Board of Directors to be chairman of
the meeting or, in the absence of such appointment, by the chairman of the board
or, in the case of a vacancy in the office or absence of the chairman of the
board, by one of the following officers present at the meeting: the vice
chairman of the board, if there be one, the president, the vice presidents in
their order of rank and seniority, or, in the absence of such officers, a
chairman chosen by the Stockholders by the vote of a majority of the votes cast
by Stockholders present in person or by proxy. The secretary, or, in the
secretary's absence, an assistant secretary, or in the absence of both the
secretary and assistant secretaries, an individual appointed by the Board of
Directors or, in the absence of such appointment, an individual appointed by the
chairman of the meeting shall act as secretary. In the event that the secretary
presides at a meeting of the Stockholders, an assistant secretary, or in the
absence of assistant secretaries, an individual appointed by the Board of
Directors or the chairman of the meeting, shall record the minutes of the
meeting. The order of business and all other matters of procedure at any meeting
of Stockholders shall be determined by the chairman of the meeting. The chairman
of the meeting may prescribe such rules, regulations and procedures and take
such action as, in the discretion of such chairman, are appropriate for the
proper conduct of the meeting, including, without limitation, (a) restricting
admission to the time set for the commencement of the meeting; (b) limiting
attendance at the meeting to Stockholders of record of the Company, their duly
authorized proxies and other such individuals as the chairman of the meeting may
determine; (c) limiting participation at the meeting on any matter to
Stockholders of record of the Company entitled to vote on such matter, their
duly authorized proxies and other such individuals as the chairman of the
meeting may determine; (d) limiting the time allotted to questions or comments
by participants; (e) determining when the polls should be opened and closed; (f)
maintaining order and security at the meeting; (g) removing any Stockholder or
any other individual who refuses to comply with meeting procedures, rules or
guidelines as set forth by the chairman of the meeting; and (h) concluding a
meeting or recessing or adjourning the meeting to a later date and time and at a
place announced at the meeting. Unless otherwise determined by the chairman of
the meeting, meetings of Stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.

      2.7 QUORUM. At any meeting of Stockholders, the presence in person or by
proxy of Stockholders entitled to cast a majority of all the votes entitled to
be cast at such meeting shall constitute a quorum; but this section shall not
affect any requirement under any statute or the charter of the Company for the
vote necessary for the adoption of any measure. If, however, such quorum shall
not be present at any meeting of the Stockholders, the chairman of the meeting,
shall have the power to adjourn the meeting from time to time to a date not more
than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.

      The Stockholders present either in person or by proxy, at a meeting which
has been duly called and convened, may continue to transact business until
adjournment, notwithstanding the withdrawal of enough Stockholders to leave less
than a quorum.

      2.8 VOTING. A majority of Stockholders present in person or by proxy at an
annual meeting at which a quorum is present may, without the necessity for
concurrence by the Board of Directors, vote to elect a Director. Each share may
be voted for as many individuals as there are Directors to be elected and for
whose election the share is entitled to be voted. A majority of the votes cast
at a meeting of Stockholders duly called and at which a quorum is present shall
be sufficient to approve any other matter which may properly come before the
meeting, unless more than a majority of the votes cast is required by statute or
by the charter of the Company. Unless otherwise provided by statute or by the
charter, each outstanding share, regardless of class, shall be entitled to one
vote on each matter submitted to a vote at a meeting of Stockholders.

      2.9 PROXIES. A Stockholder may cast the votes entitled to be cast by the
shares of stock owned of record by him, either in person or by proxy executed by
the Stockholder or by his duly authorized agent in any manner permitted by law.
Such proxy or evidence of authorization of such proxy shall be filed with the
secretary of the Company before or at the meeting. No proxy shall be valid more
than eleven months after its date unless otherwise provided in the proxy.

                                      -2-


      2.10 SPECIAL VOTING PROVISIONS.

            (a) VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Company
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by an officer thereof, a general partner or
trustee thereof, as the case may be, or a proxy appointed by any of the
foregoing individuals, unless some other person who has been appointed to vote
such stock pursuant to a bylaw or a resolution of the governing body of such
corporation or other entity or agreement of the partners of a partnership
presents a certified copy of such bylaw, resolution or agreement, in which case
such person may vote such stock. Any Director or other fiduciary may vote stock
registered in his name as such fiduciary, either in person or by proxy.

            Shares of stock of the Company directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.

            The Board of Directors may adopt by resolution a procedure by which
a Stockholder may certify in writing to the Company that any shares of stock
registered in the name of the Stockholder are held for the account of a
specified person other than the Stockholder. The resolution shall set forth the
class of Stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books and any other provisions with respect to the
procedure which the Board of Directors considers necessary or desirable. On
receipt of such certification, the person specified in the certification shall
be regarded as, for the purposes set forth in the certification, the Stockholder
who makes the certification.

            (b) EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE.
Notwithstanding any other provision of the charter of the Company or these
Bylaws, Title 3, Subtitle 7 of the Maryland General Corporation Law (the "MGCL")
(or any successor statute) shall not apply to any acquisition by any person of
shares of stock of the Company. This section may be repealed, in whole or in
part, at any time, whether before or after an acquisition of control shares and,
upon such repeal, may, to the extent provided by any successor bylaw, apply to
any prior or subsequent control share acquisition.

      2.11 INSPECTORS. The Board of Directors, in advance of any meeting, may,
but need not, appoint one or more individual inspectors or one or more entities
that designate individuals as inspectors to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the Board of Directors in advance
of the meeting or at the meeting by the chairman of the meeting. The inspectors,
if any, shall determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all Stockholders. Each such report shall be in writing and signed by
him or her or by a majority of them if there is more than one inspector acting
at such meeting. If there is more than one inspector, the report of a majority
shall be the report of the inspectors. The report of the inspector or inspectors
on the number of shares represented at the meeting and the results of the voting
shall be prima facie evidence thereof.

      2.12 ADVANCE NOTICE OF STOCKHOLDER NOMINEES FOR DIRECTOR AND OTHER
STOCKHOLDER PROPOSALS.

            (a) Annual Meetings of Stockholders. (1) Nominations of individuals
for election to the Board of Directors and the proposal of other business to be
considered by the Stockholders may be made at an annual meeting of Stockholders
(i) pursuant to the Company's notice of meeting, (ii) by or at the direction of
the Board of Directors or (iii) by any Stockholder of the Company who was a
Stockholder of record both at the time of giving of notice by the Stockholder as
provided for in this Section 2.12(a) and at the time of the annual meeting, who
is entitled to vote at the meeting and who has complied with this Section
2.12(a).

                                      -3-


            (2) For nominations or other business to be properly brought before
an annual meeting by a Stockholder pursuant to clause (iii) of paragraph (a)(1)
of this Section 2.12, the Stockholder must have given timely notice thereof in
writing to the secretary of the Company and such other business must otherwise
be a proper matter for action by the Stockholders. To be timely, a Stockholder's
notice shall set forth all information required under this Section 2.12 and
shall be delivered to the secretary at the principal executive office of the
Company not earlier than the 150th day nor later than 5:00 p.m., Pacific Time,
on the 120th day prior to the first anniversary of the date of mailing of the
notice for the preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is advanced or delayed by more than 30
days from the first anniversary of the date of the preceding year's annual
meeting, notice by the Stockholder to be timely must be so delivered not earlier
than the 150th day prior to the date of such annual meeting and not later than
5:00 p.m., Pacific Time, on the later of the 120th day prior to the date of such
annual meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made. The public announcement of a
postponement or adjournment of an annual meeting shall not commence a new time
period for the giving of a Stockholder's notice as described above. Such
Stockholder's notice shall set forth (i) as to each individual whom the
Stockholder proposes to nominate for election or reelection as a Director, (A)
the name, age, business address and residence address of such individual, (B)
the class, series and number of any shares of stock of the Company that are
beneficially owned by such individual, (C) the date such shares were acquired
and the investment intent of such acquisition and (D) all other information
relating to such individual that is required to be disclosed in solicitations of
proxies for election of Directors in an election contest (even if an election
contest is not involved), or is otherwise required, in each case pursuant to
Regulation 14A (or any successor provision) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules thereunder (including such
individual's written consent to being named in the proxy statement as a nominee
and to serving as a Director if elected); (ii) as to any other business that the
Stockholder proposes to bring before the meeting, a description of such
business, the reasons for proposing such business at the meeting and any
material interest in such business of such Stockholder and any Stockholder
Associated Person (as defined below), individually or in the aggregate,
including any anticipated benefit to the Stockholder and the Stockholder
Associated Person therefrom; (iii) as to the Stockholder giving the notice and
any Stockholder Associated Person, the class, series and number of all shares of
stock of the Company which are owned by such Stockholder and by such Stockholder
Associated Person, if any, and the nominee holder for, and number of, shares
owned beneficially but not of record by such Stockholder and by any such
Stockholder Associated Person; (iv) as to the Stockholder giving the notice and
any Stockholder Associated Person covered by clauses (ii) or (iii) of this
paragraph (2) of this Section 2.12(a), the name and address of such Stockholder,
as they appear on the Company's stock ledger and current name and address, if
different, and of such Stockholder Associated Person; and (v) to the extent
known by the Stockholder giving the notice, the name and address of any other
Stockholder supporting the nominee for election or reelection as a Director or
the proposal of other business on the date of such Stockholder's notice.

            (3) Notwithstanding anything in this subsection (a) of this Section
2.12 to the contrary, in the event the Board of Directors increases or decreases
the maximum or minimum number of Directors in accordance with Article III,
Section 3.2 of these Bylaws, and there is no public announcement of such action
at least 130 days prior to the first anniversary of the date of mailing of the
notice of the preceding year's annual meeting, a Stockholder's notice required
by this Section 2.12(a) shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if it shall be
delivered to the secretary at the principal executive office of the Company not
later than 5:00 p.m., Pacific Time, on the tenth day following the day on which
such public announcement is first made by the Company.

            (4) For purposes of this Section 2.12, "Stockholder Associated
Person" of any Stockholder shall mean (i) any person controlling, directly or
indirectly, or acting in concert with, such Stockholder, (ii) any beneficial
owner of shares of stock of the Company owned of record or beneficially by such
Stockholder and (iii) any person controlling, controlled by or under common
control with such Stockholder Associated Person.

      (b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of Stockholders as shall have been brought before
the meeting pursuant to the Company's notice of meeting. Nominations of
individuals for election to the Board of Directors may be made at a special
meeting of Stockholders at which Directors are to be elected (i) pursuant to the
Company's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
Directors shall be

                                      -4-


elected at such special meeting, by any Stockholder of the Company who is a
Stockholder of record both at the time of giving of notice provided for in this
Section 2.12 and at the time of the special meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 2.12. In the event the Company calls a special meeting of Stockholders
for the purpose of electing one or more individuals to the Board of Directors,
any such Stockholder may nominate an individual or individuals (as the case may
be) for election as a Director as specified in the Company's notice of meeting,
if the Stockholder's notice required by paragraph (2) of this Section 2.12(a)
shall be delivered to the secretary at the principal executive office of the
Company not earlier than the 150th day prior to such special meeting and not
later than 5:00 p.m., Pacific Time on the later of the 120th day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. The public announcement of
a postponement or adjournment of a special meeting shall not commence a new time
period for the giving of a Stockholder's notice as described above.

            (c) GENERAL. (1) Upon written request by the secretary or the Board
of Directors or any committee thereof, any Stockholder proposing a nominee for
election as a Director or any proposal for other business at a meeting of
Stockholders shall provide, within five Business Days of delivery of such
request (or such other period as may be specified in such request), written
verification, satisfactory, in the discretion of the Board of Directors or any
committee thereof or any authorized officer of the Company, to demonstrate the
accuracy of any information submitted by the Stockholder pursuant to this
Section 2.12. If a Stockholder fails to provide such written verification within
such period, the information as to which written verification was requested may
be deemed not to have been provided in accordance with this Section 2.12.

                  (2) Only such individuals who are nominated in accordance with
this Section 2.12 shall be eligible for election by Stockholders as Directors,
and only such business shall be conducted at a meeting of Stockholders as shall
have been brought before the meeting in accordance with this Section 2.12. The
chairman of the meeting shall have the power to determine whether a nomination
or any other business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with this Section 2.12.

                  (3) For purposes of this Section 2.12, (a) the "date of
mailing of the notice" shall mean the date of the proxy statement for the
solicitation of proxies for election of Directors and (b) "public announcement"
shall mean disclosure (i) in a press release reported by the Dow Jones News
Service, Associated Press, Business Wire, PR Newswire or comparable news service
or (ii) in a document publicly filed by the Company with the Securities and
Exchange Commission pursuant to the Exchange Act.

                  (4) Notwithstanding the foregoing provisions of this Section
2.12, a Stockholder shall also comply with all applicable requirements of state
law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 2.12. Nothing in this Section
2.12 shall be deemed to affect any right of a Stockholder to request inclusion
of a proposal in, nor the right of the Company to omit a proposal from, the
Company's proxy statement pursuant to Rule 14a-8 (or any successor provision)
under the Exchange Act.

      2.13 VOTING BY BALLOT. Voting on any question or in any election may be
viva voce unless the chairman of the meeting shall order that voting be by
ballot.

                                    ARTICLE 3
                                    DIRECTORS

      3.1 GENERAL POWERS. The business and affairs of the Company shall be
managed under the direction of its Board of Directors.


      3.2 NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or at any
special meeting called for that purpose, a majority of the entire Board of
Directors may establish, increase or decrease the number of Directors, provided
that the number thereof shall never be less than three, nor more than 15, and
further provided that the tenure of office of a Director shall not be affected
by any decrease in the number of Directors. A majority of the Board of Directors
will be Independent Directors, except for a period of up to 60 days after the
death, removal or resignation of an Independent Director pending the election of
such Independent Director's successor. The remaining Directors will be
individuals nominated by the Advisor (as defined in the charter of the Company).


                                      -5-




      3.3 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors shall be held immediately after and at the same place as the annual
meeting of Stockholders, no notice other than this Bylaw being necessary. In the
event such meeting is not so held, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors. The Board of Directors may provide,
by resolution, the time and place for the holding of regular meetings of the
Board of Directors without other notice than such resolution.

      3.4 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by or at the request of the chairman of the board or president or by a
majority of the Directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within
or without the State of Maryland, as the place for holding any special meeting
of the Board of Directors called by them. The Board of Directors may provide, by
resolution, the time and place for the holding of special meetings of the Board
of Directors without other notice than such resolution.

      3.5 NOTICE. Notice of any special meeting of the Board of Directors shall
be delivered personally or by telephone, electronic mail, facsimile
transmission, United States mail or courier to each Director at his business or
residence address. Notice by personal delivery, telephone, electronic mail or
facsimile transmission shall be given at least 24 hours prior to the meeting.
Notice by United States mail shall be given at least three days prior to the
meeting. Notice by courier shall be given at least two days prior to the
meeting. Telephone notice shall be deemed to be given when the Director or his
agent is personally given such notice in a telephone call to which the Director
or his agent is a party. Electronic mail notice shall be deemed to be given upon
transmission of the message to the electronic mail address given to the Company
by the Director. Facsimile transmission notice shall be deemed to be given upon
completion of the transmission of the message to the number given to the Company
by the Director and receipt of a completed answer-back indicating receipt.
Notice by United States mail shall be deemed to be given when deposited in the
United States mail properly addressed, with postage thereon prepaid. Notice by
courier shall be deemed to be given when deposited with or delivered to a
courier properly addressed. Neither the business to be transacted at, nor the
purpose of, any annual, regular or special meeting of the Board of Directors
need be stated in the notice, unless specifically required by statute or these
Bylaws.

      3.6 QUORUM. A majority of the Directors shall constitute a quorum for
transaction of business at any meeting of the Board of Directors, provided that,
if less than a majority of such Directors are present at said meeting, a
majority of the Directors present may adjourn the meeting from time to time
without further notice and provided further that if, pursuant to applicable law,
the charter or these Bylaws, the vote of a majority of a particular group of
Directors is required for action, a quorum must also include a majority of such
group.

            The Directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Directors to leave less than a quorum.

            3.7 VOTING.

            (a) The action of the majority of the Directors present at a meeting
at which a quorum is present shall be the action of the Board of Directors,
unless the concurrence of a greater proportion is required for such action by
applicable law, the charter or these Bylaws.

            (b) Any action pertaining to any transaction in which the Company is
purchasing, selling, leasing or mortgaging any real estate asset, making a joint
venture investment or engaging in any other transaction in which an advisor,
Director or officer of the Company, any affiliated lessee or affiliated contract
manager of any property of the Company or any affiliate of the foregoing has any
direct or indirect interest other than as a result of their status as a
Director, officer or Stockholder of the Company, shall be approved by the
affirmative vote of a majority of the Independent Directors, even if the
Independent Directors constitute less than a quorum.

                                      -6-


      If enough Directors have withdrawn from a meeting to leave less than a
quorum but the meeting is not adjourned, the action of the majority of that
number of Directors necessary to constitute a quorum at such meeting shall be
the action of the Board of Directors, unless the concurrence of a greater
proportion is required for such action by applicable law, the charter or these
Bylaws.

      3.8. ORGANIZATION. At each meeting of the Board of Directors, the chairman
of the board or, in the absence of the chairman, the vice chairman of the board,
if any, shall act as chairman of the meeting. In the absence of both the
chairman and vice chairman of the board, the chief executive officer or in the
absence of the chief executive officer, the president or in the absence of the
president, a Director chosen by a majority of the Directors present, shall act
as chairman of the meeting. The secretary or, in his or her absence, an
assistant secretary of the Company, or in the absence of the secretary and all
assistant secretaries, an individual appointed by the Chairman, shall act as
secretary of the meeting.

      3.9 TELEPHONE MEETINGS. Directors may participate in a meeting by means of
a conference telephone or other communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means shall constitute presence in person at the meeting.

      3.10 CONSENT OF DIRECTORS WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing or by electronic transmission to such
action is given by each Director and is filed with the minutes of proceedings of
the Board of Directors.

      3.11 VACANCIES. If for any reason any or all the Directors cease to be
Directors, such event shall not terminate the Company or affect these Bylaws or
the powers of the remaining Directors hereunder (even if fewer than three
Directors remained). Except as may be provided by the Board of Directors in
setting the terms of any class or series of preferred stock, any vacancy on the
Board of Directors for any cause shall be filled by a majority of the remaining
Directors, although such majority is less than a quorum. Any individual so
elected as Director shall hold office until the next annual meeting of
Stockholders and until his successor is elected and qualifies.

      3.12 COMPENSATION. Directors shall not receive any stated salary for their
services as Directors but, by resolution of the Board of Directors, Directors
who are not employees of the Company, the Advisor or its Affiliates may receive
fixed sums per quarter or per meeting and/or per visit to real property or other
facilities owned or leased by the Company and for any service or activity they
performed or engaged in as Directors or as committee members. Directors may
receive options or warrants pursuant to stock option plans or warrant plans that
may be adopted by the Company, and may be reimbursed for expenses of attendance,
if any, at each annual, regular or special meeting of the Board of Directors or
of any committee thereof and for their expenses, if any, in connection with each
property visit and other service or activity they performed or engaged in as
Directors or as committee members; but nothing herein contained shall be
construed to preclude any Directors from serving the Company in any other
capacity and receiving compensation therefor.

      3.13 LOSS OF DEPOSITS. No Director shall be liable for any loss which may
occur by reason of the failure of the bank, trust company, savings and loan
association, or other institution with whom monies or stock have been deposited.

      3.14 SURETY BONDS. Unless required by law, no Director shall be obligated
to give any bond or surety or other security for the performance of any of his
duties.

      3.15 RELIANCE. Each Director, officer, employee and agent of the Company
shall, in the performance of his duties with respect to the Company, be fully
justified and protected with regard to any act or failure to act in reliance in
good faith upon the books of account or other records of the Company, upon an
opinion of counsel or upon reports made to the Company by any of its officers or
employees or by the adviser, accountants, appraisers or other experts or
consultants selected by the Board of Directors or officers of the Company,
regardless of whether such counsel or expert may also be a Director.

      3.16 CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
Directors shall have no responsibility to devote their full time to the affairs
of the Company. Any Director or officer, employee

                                      -7-


or agent of the Company, in his personal capacity or in a capacity as an
affiliate, employee, or agent of any other person, or otherwise, may have
business interests and engage in business activities similar to or in addition
to or in competition with those of or relating to the Company.

                                    ARTICLE 4
                                   COMMITTEES

      4.1 NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may appoint
from among its members committees, composed of one or more Directors, to serve
at the pleasure of the Board of Directors. A majority of each committee shall
consist of Independent Directors (as defined in the charter of the Company).

      4.2 POWERS. The Board of Directors may delegate to committees appointed
under Section 4.1 of this Article any of the powers of the Board of Directors,
except as prohibited by law.

      4.3 MEETINGS. Notice of committee meetings shall be given in the same
manner as notice for special meetings of the Board of Directors. A majority of
the members of the committee shall constitute a quorum for the transaction of
business at any meeting of the committee. The act of a majority of the committee
members present at a meeting shall be the act of such committee. The Board of
Directors may designate a chairman of any committee, and such chairman or, in
the absence of such chairman, any two members of any committee (if there are at
least two members of the committee) may fix the time and place of its meeting
unless the Board shall otherwise provide. In the absence of any member of any
such committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another Director to act in the place of such
absent member. Each committee shall keep minutes of its proceedings.

      4.4 TELEPHONE MEETINGS. Members of a committee of the Board of Directors
may participate in a meeting by means of a conference telephone or other
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.

      4.5 CONSENT BY COMMITTEES WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing or by electronic
transmission to such action is given by each member of the committee and is
filed with the minutes of proceedings of such committee.

      4.6 VACANCIES. Subject to the provisions hereof, the Board of Directors
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members to replace any absent or
disqualified member or to dissolve any such committee.

                                    ARTICLE 5
                                    OFFICERS

      5.1 GENERAL PROVISIONS. The officers of the Company shall include a
President, a Treasurer and a Secretary and may include a chairman of the board,
a vice chairman of the board, a chief executive officer, one or more vice
presidents, a chief operating officer, a chief financial officer, one or more
assistant secretaries and one or more assistant treasurers. In addition, the
Board of Directors may from time to time elect such other officers with such
powers and duties as it shall deem necessary or desirable. The officers of the
Company shall be elected annually by the Board of Directors, except that the
chief executive officer or president may from time to time appoint one or more
vice presidents, assistant secretaries and assistant treasurers or other
officers. Each officer shall hold office until his successor is elected and
qualifies or until his death or his resignation or removal in the manner
hereinafter provided. Any two or more offices except president and vice
president may be held by the same person. Election of an officer or agent shall
not itself create contract rights between the Company and such officer or agent.

      5.2 REMOVAL AND RESIGNATION. Any officer or agent of the Company may be
removed, with or without cause, by the Board of Directors if in its judgment the
best interests of the Company would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the

                                      -8-


Company may resign at any time by giving written notice of his resignation to
the Board of Directors, the chairman of the board, the president or the
secretary. Any resignation shall take effect immediately upon its receipt or at
such later time specified in the notice of resignation. The acceptance of a
resignation shall not be necessary to make it effective unless otherwise stated
in the resignation. Such resignation shall be without prejudice to the contract
rights, if any, of the Company.

      5.3 VACANCIES. A vacancy in any office may be filled by the Board of
Directors for the balance of the term.

      5.4 CHIEF EXECUTIVE OFFICER. The Board of Directors may designate a chief
executive officer. In the absence of such designation, the chairman of the board
shall be the chief executive officer of the Company. The chief executive officer
shall have general responsibility for implementation of the policies of the
Company, as determined by the Board of Directors, and for the management of the
business and affairs of the Company. He may execute any deed, mortgage, bond,
contract or other instrument, except in cases where the execution thereof shall
be expressly delegated by the Board of Directors or by these Bylaws to some
other officer or agent of the Company or shall be required by law to be
otherwise executed; and in general shall perform all duties incident to the
office of chief executive officer and such other duties as may be prescribed by
the Board of Directors from time to time.

      5.5 CHIEF OPERATING OFFICER. The Board of Directors may designate a chief
operating officer. The chief operating officer shall have the responsibilities
and duties as set forth by the Board of Directors or the chief executive
officer.

      5.6 CHIEF FINANCIAL OFFICER. The Board of Directors may designate a chief
financial officer. The chief financial officer shall have the responsibilities
and duties as set forth by the Board of Directors or the chief executive
officer.

      5.7 CHAIRMAN OF THE BOARD. The Board of Directors shall designate a
chairman of the board. The chairman of the board shall preside over the meetings
of the Board of Directors and of the Stockholders at which he shall be present.
The chairman of the board shall perform such other duties as may be assigned to
him by the Board of Directors.

      5.8 PRESIDENT. In the absence of a chief executive officer, the president
shall in general supervise and control all of the business and affairs of the
Company. In the absence of a designation of a chief operating officer by the
Board of Directors, the president shall be the chief operating officer. He may
execute any deed, mortgage, bond, contract or other instrument, except in cases
where the execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Company or
shall be required by law to be otherwise executed; and in general shall perform
all duties incident to the office of president and such other duties as may be
prescribed by the Board of Directors from time to time.

      5.9 VICE PRESIDENTS. In the absence of the president or in the event of a
vacancy in such office, the vice president (or in the event there be more than
one vice president, the vice presidents in the order designated at the time of
their election or, in the absence of any designation, then in the order of their
election) shall perform the duties of the president and when so acting shall
have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Board of Directors. The Board of
Directors may designate one or more vice presidents as executive vice president
or as vice president for particular areas of responsibility.

      5.10 SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the Stockholders, the Board of Directors and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the Company; (d) keep a register of the post office address of each Stockholder
which shall be furnished to the secretary by such Stockholder; (e) have general
charge of the share transfer books of the Company; and (f) in general perform
such other duties as from time to time may be assigned to him by the chief
executive officer, the president or by the Board of Directors.

                                      -9-


      5.11 TREASURER. The treasurer shall have the custody of the funds and
securities of the Company and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Company and shall deposit all moneys
and other valuable effects in the name and to the credit of the Company in such
depositories as may be designated by the Board of Directors. In the absence of a
designation of a chief financial officer by the Board of Directors, the
treasurer shall be the chief financial officer of the Company.

            The treasurer shall disburse the funds of the Company as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his transactions as treasurer and of the financial condition of
the Company.

            If required by the Board of Directors, the treasurer shall give the
Company a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Company, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, monies and other property of whatever kind in his possession or under
his or her control belonging to the Company.

      5.12 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant
secretaries and assistant treasurers, in general, shall perform such duties as
shall be assigned to them by the secretary or treasurer, respectively, or by the
president or the Board of Directors. The assistant treasurers shall, if required
by the Board of Directors, give bonds for the faithful performance of their
duties in such sums and with such surety or sureties as shall be satisfactory to
the Board of Directors.

      5.13 SALARIES. The salaries and other compensation of the officers shall
be fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary or other compensation by reason of the fact
that he or she is also a Director.

                                    ARTICLE 6
                      CONTRACTS, LOANS, CHECKS AND DEPOSITS

      6.1 CONTRACTS. The Board of Directors or a committee of the Board of
Directors within the scope of its delegated authority may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Company and such authority may be general or
confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the Directors or by an authorized person
shall be valid and binding upon the Company when authorized or ratified by
action of the Board of Directors or such committee and executed by an authorized
person.

      6.2 CHECKS AND DRAFTS. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
Company shall be signed by such officer or agent of the Company in such manner
as shall from time to time be determined by the Board of Directors.

      6.3 DEPOSITS. All funds of the Company not otherwise employed shall be
deposited from time to time to the credit of the Company in such banks, trust
companies or other depositories as the Board of Directors may designate.

                                    ARTICLE 7
                                      STOCK

      7.1 CERTIFICATES; REQUIRED INFORMATION. In the event that the Company
issues shares of stock represented by certificates, such certificates shall be
signed by the officers of the Company in the manner permitted by the MGCL and
contain the statements and information required by the MGCL. In the event that
the Company issues shares of stock without certificates, the Company shall
provide to holders of such shares a written statement of the information
required by the MGCL to be included on stock certificates.

                                      -10-


      7.2 TRANSFERS WHEN CERTIFICATES ISSUED. Upon surrender to the Company or
the transfer agent of the Company of a stock certificate duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the Company shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.

            The Company shall be entitled to treat the holder of record of any
share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.

            Notwithstanding the foregoing, transfers of shares of any class of
stock will be subject in all respects to the charter of the Company and all of
the terms and conditions contained therein.

      7.3 REPLACEMENT CERTIFICATE. Any officer designated by the Board of
Directors may direct a new certificate to be issued in place of any certificate
previously issued by the Company alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing the issuance of a
new certificate, an officer designated by the Board of Directors may, in his or
her discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as he or she shall require
and/or to give bond, with sufficient surety, to the Company to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.

      7.4 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of
Directors may set, in advance, a record date for the purpose of determining
Stockholders entitled to notice of or to vote at any meeting of Stockholders or
determining Stockholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
Stockholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of Stockholders, not less
than ten days, before the date on which the meeting or particular action
requiring such determination of Stockholders of record is to be held or taken.

            In lieu of fixing a record date, the Board of Directors may provide
that the stock transfer books shall be closed for stated period but not longer
than 20 days. If the stock transfer books are closed for the purpose of
determining Stockholders entitled to notice of or to vote at a meeting of
Stockholders, such books shall be closed for at least ten days before the date
of such meeting.

            If no record date is fixed and stock transfer books are not closed
for the determination of Stockholders, (a) the record date for the determination
of Stockholders entitled to notice of or to vote at a meeting of Stockholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of Stockholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the Directors,
declaring the divided or allotment of rights, is adopted.

            When a determination of Stockholders entitled to vote at any meeting
of Stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.

      7.5 STOCK LEDGER. The Company shall maintain at its principal office or at
the office of its counsel, accountants or transfer agent, an original or
duplicate stock ledger containing the name and address of each Stockholder and
the number of shares of each class held by such Stockholder.

      7.6 FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors may issue
fractional stock or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other provision
of the charter or these Bylaws, the Board of Directors may issue units
consisting

                                      -11-


of different securities of the Company. Any security issued in a unit shall have
the same characteristics as any identical securities issued by the Company,
except that the Board of Directors may provide that for a specified period
securities of the Company issued in such unit may be transferred on the books of
the Company only in such unit.

                                    ARTICLE 8
                                 ACCOUNTING YEAR

      The Board of Directors shall have the power, from time to time, to fix the
fiscal year of the Company by a duly adopted resolution provided that the
fiscal year of the Company shall be the calendar year for all taxable periods
prior to any termination or revocation of qualification of the Company as a real
estate investment trust under the Internal Revenue Code.

                                    ARTICLE 9
                                  DISTRIBUTIONS

      9.1 AUTHORIZATION. Dividends and other distributions upon the stock of the
Company may be authorized by the Board of Directors, subject to the provisions
of law and the charter of the Company. Dividends and other distributions may be
paid in cash, property or stock of the Company, subject to the provisions of law
and the charter.

      9.2 CONTINGENCIES. Subject to distributions required to be made by the
Company in order to maintain its status as a real estate investment trust under
the Internal Revenue Code, before payment of any dividends or other
distributions, there may be set aside out of any assets of the Company available
for dividends or other distributions such sum or sums as the Board of Directors
may from time to time, in its absolute discretion, think proper as a reserve
fund for contingencies, for equalizing any property of the Company or for such
other purpose as the Board of Directors shall determine to be in the best
interests of the Company, and the Board of Directors may modify or abolish any
such reserve.

                                   ARTICLE 10
                                INVESTMENT POLICY

      Subject to the provisions of the charter of the Company, the Board of
Directors may from time to time adopt, amend, revise or terminate any policy or
policies with respect to investments by the Company as it shall deem appropriate
in its sole discretion.

                                   ARTICLE 11
                                      SEAL

      11.1 SEAL. The Board of Directors may authorize the adoption of a seal by
the Company. The seal shall contain the name of the Company and the year of its
incorporation and the words "Incorporated Maryland." The Board of Directors may
authorize one or more duplicate seals and provide for the custody thereof.

      11.2 AFFIXING SEAL. Whenever the Company is permitted or required to affix
its seal to a document, it shall be sufficient to meet the requirements of any
law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent
to the signature of the person authorized to execute the document on behalf of
the Company.

                                   ARTICLE 12
                                WAIVER OF NOTICE

      Whenever any notice is required to be given pursuant to the charter of the
Company or these Bylaws or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except where

                                      -12-


such person attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

                                   ARTICLE 13
                               AMENDMENT OF BYLAWS

      The Board of Directors shall have the exclusive power to adopt, alter or
repeal any provision of these Bylaws and to make new Bylaws.

                                      -13-

EX-8.1

Exhibit 8.1

Form of Tax Opinion

[Letterhead of Preston Gates & Ellis, LLP]

[Date]

Cornerstone Core Properties REIT, Inc.
4590 MacArthur Blvd., Suite 610
Newport Beach, CA 92660

     Re:  Cornerstone Core Properties REIT, Inc.

Ladies and Gentlemen:

     You have requested our opinions with respect to material federal income tax matters in connection with the proposed offering (the “Offering”) of up to 56,962,500 shares of common stock (the “Shares”) of Cornerstone Core Properties REIT, Inc., a Maryland corporation (the “Company”), as more fully described in the registration statement on Form S-11, Registration No. 333-121238 (the “Registration Statement”), and the prospectus included therein (the “Prospectus”), filed by the Company with the Securities and Exchange Commission, and with respect to Cornerstone Operating Partnership, L.P. (the “Partnership”). Except as otherwise provided, capitalized items referred to herein have the same meaning as set forth in the Prospectus. References herein to the Prospectus shall include all exhibits thereto.

     In connection with this opinion, we have examined and are relying upon, without independent investigation or review thereof, the truth and accuracy, at all times, of the Registration Statement and exhibits to the Registration Statement, including the Articles of Amendment and Restatement of the Articles of Incorporation of the Company (the “Articles”) and the Bylaws of the Company (the “Bylaws”), the Certificate of Limited Partnership of Cornerstone Operating Partnership, L.P. (the “L.P. Certificate”), and the Agreement of Limited Partnership for Cornerstone Operating Partnership, L.P. (“Operating Partnership Agreement”). In addition, we have relied upon the letter provided to us from the Company, dated as of the date hereof, representing the truth and accuracy of the representations attributed to it in the Prospectus and including certain other representations. We have also examined and relied upon such records, documents, certificates, instructions, resolutions and other matters which, in our judgment, were necessary in order to enable us to render the opinions set forth herein.

     Our opinions set forth below are based on the assumptions that (i) the Company’s proposed method of operation and share ownership structure will be as described in the Prospectus; (ii) the Company and the Partnership are, and will continue to be, organized and managed as set forth in the Prospectus; (iii) the Offering and subsequent transactions involving the Shares will be consummated in the manner contemplated by the Prospectus; (iv) the Articles,

Cornerstone Core Properties REIT, Inc.
_____________, 2005
Page 2

Bylaws, L.P. Certificate and Operating Partnership Agreement are not amended or modified in any material respect from the forms attached as exhibits to the Prospectus, and all material terms and conditions in such documents are complied with; and (v) the Partnership has not made, and will not make, an election under U.S. Treasury Regulation Section 301.7701-3 to be classified as an associated taxable as a corporation for U.S. federal income tax purposes. We have also assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us as photocopies.

     Based on the foregoing and subject to the assumptions, exceptions, limitations, and qualifications set forth herein, we are of the opinion that:

     1.      The Company has been organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).

     2.      The Company’s method of operation through the date hereof has enabled, and its proposed method of operation will enable, it to satisfy the requirements for qualification and taxation as a REIT under the Code for the taxable year ending December 31, 2005.

     3.      The Partnership will be properly classified as a partnership under the Code.

     4.      Insofar as they purport to describe provisions of United States Federal income tax law, the statements set forth under the caption “Federal Income Tax Considerations” in the Prospectus are accurate in all material respects.

     The Company’s qualification as a REIT will depend upon the continuing satisfaction by the Company of the requirements of the Code relating to qualification for REIT status, some of which requirements are dependent upon actual operating results, distribution levels, diversity of stock ownership (which requirements are not applicable in the current year), asset composition, source of income and record keeping. We do not undertake to monitor whether the Company actually has satisfied or will satisfy the various REIT qualification tests.

     This opinion represents and is based upon our best judgment regarding the application of federal income tax laws arising under the Code, existing judicial decisions, administrative regulations and published rulings and procedures. Our opinion is not binding upon the Internal Revenue Service or the courts and there is no assurance that the Internal Revenue Service could not successfully assert a contrary opinion. Furthermore, no assurance can be given that future legislative, judicial or administrative changes, either on a prospective or retroactive basis, would not adversely affect the accuracy of the conclusions stated herein.

     This letter and the opinions expressed or confirmed herein are for delivery to the Company and may be relied upon only by it and its stockholders who acquire their Shares from the Company.

Cornerstone Core Properties REIT, Inc.
_____________, 2005
Page 3

     We hereby consent to the filing with the Securities and Exchange Commission of this letter as an exhibit to the Registration Statement of which the Prospectus is a part and the reference to us under the caption “Federal Income Tax Considerations”. In giving such consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act.

Very truly yours,

Preston Gates & Ellis LLP

By

Charles H. Purcell

EX-10.1

                                                                    Exhibit 10.1
                                    FORM OF
                               ADVISORY AGREEMENT

                                 BY AND BETWEEN

                     CORNERSTONE CORE PROPERTIES REIT, INC.

                                   ("COMPANY")

                                       AND

                        CORNERSTONE REALTY ADVISORS, LLC

                                   ("ADVISOR")



                                TABLE OF CONTENTS



                                                                         PAGE
                                                                         ----
                                                                      
Definitions......................................................          1
Appointment......................................................          8
Authority of the Advisor.........................................          8
Duties and Authority of the Advisor..............................          9
Records; Access..................................................         13
Limitations on Activities........................................         13
Relationship With Directors......................................         14
Fees.............................................................         14
Expenses.........................................................         15
Fidelity Bond....................................................         17
Other Activities of the Advisor..................................         17
Relationship of Advisor and Company..............................         18
Representations and Warranties...................................         18
Term; Termination of Agreement...................................         19
Termination......................................................         19
Payments to and Duties of Advisor upon Termination...............         19
Assignment to an Affiliate.......................................         20
Indemnification by the Company...................................         20
Indemnification by Advisor.......................................         21
Advisor's Liability..............................................         21
Notices..........................................................         21
Modification.....................................................         21
Severability.....................................................         22
Construction.....................................................         22
Entire Agreement.................................................         22
Indulgences, Not Waivers.........................................         22
Gender...........................................................         22
Titles Not to Affect Interpretation..............................         22
Execution in Counterparts........................................         22
Initial Investment...............................................         22
Name.............................................................         22


                                       (i)



                               ADVISORY AGREEMENT

      THIS ADVISORY AGREEMENT, dated as of __________, 2005, is entered into
between CORNERSTONE CORE PROPERTIES REIT, INC., a Maryland corporation (the
"Company"), and CORNERSTONE REALTY ADVISORS, LLC, a California limited liability
company (the "Advisor").

                               W I T N E S S E T H

      WHEREAS, the Company has filed with the Securities and Exchange Commission
a Registration Statement on Form S-11 (No. 333-_______) (the "Registration
Statement") covering the issuance of common stock, and the Company may
subsequently issue additional shares of common stock (collectively, the
"Stock");

      WHEREAS, the Company intends to qualify as a REIT (as defined below), and
to invest its funds in investments permitted by the terms of the Company's
charter and Sections 856 through 860 of the Code (as defined below);

      WHEREAS, the Company desires to avail itself of the experience, sources of
information, advice, assistance and certain facilities available to the Advisor
and to have the Advisor undertake the duties and responsibilities hereinafter
set forth, on behalf of, and subject to the supervision of the Board of
Directors of the Company all as provided herein; and

      WHEREAS, the Advisor is willing to undertake to render such services,
subject to the supervision of the Board of Directors, on the terms and
conditions hereinafter set forth.

      NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:

      1. Definitions. As used in this Advisory Agreement (the "Agreement"),
  the following terms have the definitions hereinafter indicated:

      Acquisition Expenses means expenses related to the Company's sourcing,
selection, evaluation and acquisition of, and investment in, Properties, whether
or not acquired or made, including but not limited to legal fees and expenses,
travel and communications expenses, costs of financial analysis, appraisals and
surveys, nonrefundable option payments on Property not acquired, accounting fees
and expenses, computer use-related expenses, architectural and engineering
reports, environmental reports, title insurance and escrow fees, and personnel
and other direct expenses related to the selection and acquisition of
Properties.

      Acquisition Fee means any and all fees and commissions, exclusive of
Acquisition Expenses, paid by any Person to any other Person (including any fees
or commissions paid by or to any Affiliate of the Company or the Advisor) in
connection with the making or investing in mortgage loans or the purchase,
development or construction of a Property, including, without limitation, real
estate commissions, acquisition fees, finder's fees, selection fees, Development
Fees and Construction Fees (except as provided in the following sentence),
nonrecurring management fees, consulting fees, loan fees, points, or any other
fees or commissions of a similar nature. Excluded shall be any commissions or
fees incurred in connection with the leasing of any Property, and Development
Fees or Construction Fees paid to any Person or entity not affiliated with the
Advisor in connection with the actual development and construction of any
Property.

      Advisor means the Person responsible for directing or performing the
day-to-day business affairs of the Company, including a Person to which an
Advisor subcontracts substantially, all such functions. The Advisor is
Cornerstone Realty Advisors, LLC or any Person which succeeds it in such
capacity.

      Advisory Agreement means this agreement between the Company and the
Advisor pursuant to which the Advisor will direct or perform the day-to-day
business affairs of the Company, as it may be amended or restated from time to
time.



      Advisor Acquisition Fee means the fee paid to the Advisor for services
rendered in connection with the investigation, selection and acquisition (by
purchase, investment or exchange) of Properties in an amount equal to 2.0% of
Gross Proceeds other than Gross Proceeds from the Reinvestment Plan.

      Affiliate or Affiliated means, as to any individual, corporation,
partnership, trust, limited liability company or other legal entity (other than
the Company), (i) any Person or entity directly or indirectly through one or
more intermediaries controlling, controlled by, or under common control with
another Person or entity; (ii) any Person or entity, directly or indirectly
owning, controlling, or holding with power to vote ten percent (10%) or more of
the outstanding voting Securities of another Person or entity; (iii) any
officer, director, general partner or trustee of such Person or entity; (iv) any
Person ten percent (10%) or more of whose outstanding voting Securities are
directly or indirectly owned, controlled or held, with power to vote, by such
other Person; and (v) if such other Person or entity is an officer, director,
general partner, or trustee of a Person or entity, the Person or entity for
which such Person or entity acts in any such capacity.

      AMEX means the American Stock Exchange.

      Appraised Value means value according to an appraisal made by an
Independent Appraiser.

      Assets means any and all GAAP assets including but not limited to all real
estate investments (real, personal or otherwise), tangible or intangible, owned
or held by, or for the account of, the Company, whether directly or indirectly
through another entity or entities, including interests in any Person or in
Joint Ventures which directly or indirectly own real estate.

      Average Invested Assets means, for a specified period, the average of the
aggregate GAAP basis book carrying values of the assets of the Company invested,
directly or indirectly, in equity interests in and loans secured by real estate
before reserves for depreciation or bad debts or other similar non-cash
reserves, computed by taking the average of such values at the end of each month
during such period.

      Asset Management Fee means the fee paid to the Advisor for directing or
performing the day-to-day business affairs of the Company in the amount
established pursuant to Section 9(b).

      Board of Directors or Board means the individuals holding such office, as
of any particular time, under the Charter of the Company, whether they be the
Directors named therein or additional or successor Directors.

      Bylaws means the Bylaws of the Company, as the same may be amended from
time to time.

      Capped O&O Expenses means all Organizational and Offering Expenses in
excess of 5.0% of the Gross Proceeds raised in a completed Offering other than
Gross Proceeds from Stock sold pursuant to the Reinvestment Plan.

      Cash from Financings means the net cash proceeds realized by the Company
from the financing of Property or from the refinancing of any Company
indebtedness.

      Cash from Sales means the net cash proceeds realized by the Company from
the sale, exchange or other disposition of any of its Assets after deduction of
all expenses incurred in connection therewith. Cash from Sales shall not include
Cash from Financings.

      Cash from Sales and Financings means Cash from Sales plus Cash from
Financings.

      Charter means the charter of the Company, including the Articles of
Incorporation and all Articles of Amendment, Articles Supplementary and other
modifications thereto as filed with the State Department of Assessments and
Taxation of the State of Maryland (the "SDAT").

                                      -2-



      Code means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute thereto. Reference to any provision of the Code
shall mean such provision as in effect from time to time, as the same may be
amended, and any successor provision thereto, as interpreted by any applicable
regulations as in effect from time to time.

      Common Stock means shares of the Company's common stock, $.001 par value
per share, the terms and conditions of which are set forth in the Charter.

      Company means Cornerstone Core Properties REIT, Inc., a corporation
organized under the laws of the State of Maryland.

      Competitive Real Estate Commission. A real estate or brokerage commission
paid for the purchase or sale of a Property that is reasonable, customary and
competitive in light of the size, type and location of the Property.

      Construction Fee means a fee or other remuneration for acting as general
contractor and/or construction manager to construct, supervise or coordinate
leasehold or other improvements or projects, or to provide major repairs or
rehabilitation for a Property.

      Dealer Manager means Pacific Cornerstone Capital, Inc., an Affiliate of
the Advisor, or such other Person or entity selected by the Board of Directors
to act as the dealer manager for the offering of the Stock. Pacific Cornerstone
Capital, Inc. is a member of the National Association of Securities Dealers,
Inc.

      Development Fee means a fee for the packaging of a Property, including
negotiating and approving plans, and undertaking to assist in obtaining zoning
and necessary variances and financing for the specific Property, either
initially or at a later date.

      Director means an individual who is a member of the Board of Directors.

      Disposition Fee means the Disposition Fee as defined in Section 9(d) of
this Agreement.


      Dividends means any dividends or other distributions of money or other
property paid by the Company to the holders of Common Stock or Preferred Stock,
including dividends that may constitute a return of capital for federal income
tax purposes.


      Excess Expense Guidelines is defined in Section 10(c)(iii) hereof.


      Excess Market Value means the amount by which (i) the market value of the
outstanding Stock, measured by taking the average closing price or average of
bid and asked price, as the case may be, during the consecutive 30-day period
commencing twelve (12) months following Listing and ending eighteen (18) months
following Listing during which the average closing price or average of bid and
asked price of the Stock is the highest (the "Market Value"), plus the total of
all Dividends (other than the Special 10% Stock Dividend) and other
distributions paid to Stockholders from the Company's inception until the date
that Market Value is determined, exceeds (ii) an amount equal to 100% of the
Invested Capital, plus an amount equal to the Stockholders' 10% Return,
Stockholders' 8% Return or Stockholders' 6% Return, as the case may be, from the
date of investment through the date Market Value is determined.





                                      -3-



      GAAP means generally accepted accounting principles consistently applied
as used in the United States.

      Gross Proceeds means the aggregate purchase price of all Stock sold for
the account of the Company, including Stock sold pursuant to the Reinvestment
Plan, without deduction for Sales Commissions, volume discounts, fees paid to
the Dealer Manager or other Organization and Offering Expenses. Gross Proceeds
does not include Stock issued in exchange for OP Units.

      Independent Appraiser means a person or entity, who is not an Affiliate of
the Advisor or the Directors, who is engaged to a substantial extent in the
business of rendering opinions regarding the value of assets of the type held by
the Company, and who is a qualified appraiser of real estate as determined by
the Board. Membership in a nationally recognized appraisal society such as the
American Institute of Real Estate Appraisers or the Society of Real Estate
Appraisers shall be conclusive evidence of such qualification.

      Independent Director means a Director who is not, and within the last two
(2) years has not been, directly or indirectly associated with the Advisor by
virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) performance of services, other
than as a Director, for the Company, (v) service as a director or trustee of
more than three (3) real estate investment trusts advised by the Advisor, or
(vi) maintenance of a material business or professional relationship with the
Advisor or any of its Affiliates. An indirect relationship shall include
circumstances in which a Director's spouse, parents, children, siblings,
mothers- or fathers-in-law, sons- or daughters-in-law or brothers- or
sisters-in-law are or have been associated with the Advisor, any of its
Affiliates or the Company. A business or professional relationship is considered
material if the gross revenue derived by the Director from the Advisor and
Affiliates exceeds five percent (5%) of either the Director's annual gross
revenue during either of the last two (2) years or the Director's net worth on a
fair market value basis.

      Initial Public Offering means the offering and sale of Common Stock of the
Company pursuant to the Company's first effective registration statement
covering such Common Stock filed under the Securities Act of 1933, as amended.


      Invested Capital means the amount calculated by multiplying the total
number of shares of Common Stock purchased by Stockholders by (i) the Offering
Price for the Stock or (ii) for Stock not purchased in an Offering, the issue
price for the Stock; in each case reduced by any Dividends or distributions
other than stock dividends which represent a return of capital and any amounts
paid by the Company to repurchase shares of Stock pursuant to a plan for
repurchase of the Company's Stock.


      Joint Venture or Joint Ventures means those joint venture or general
partnership arrangements in which the Company or the Operating Partnership is a
co-venturer or general partner which are established to acquire Properties.

      Leasing Agent means an entity that has been retained to perform and carry
out leasing activities for one or more of the Properties.


      Listed means approved for trading on the NYSE, AMEX or Nasdaq/NMS, any
successor to such entities or on any national securities exchange that has
listing standards that the Securities and Exchange Commission determines by rule
are substantially similar to the listing standards of the NYSE, AMEX or
Nasdaq/NMS. The term "Listing" shall have the correlative meaning.


      Nasdaq/NMS. National Market System of the Nasdaq Stock Market.

      NASAA means the North American Securities Administrators Association, Inc.

      NASAA Net Income means for any period, the total revenues applicable to
such period, less the total expenses applicable to such period excluding
additions to reserves for depreciation, bad debts or other similar non-

                                      -4-



cash reserves; provided, however, NASAA Net Income for purposes of calculating
total allowable Operating Expenses shall exclude the gain or loss from the sale
of the Company's Assets.


      NASAA REIT Guidelines means the Statement of Policy Regarding Real Estate
Investment Trusts published by the North American Securities Administrators
Association.


      Net Appraised Value means the Appraised Value of the Company's Assets at
the Termination Date, less amounts of all indebtedness of the Company.


      Net Asset Value means the total Assets including intangible assets
relating to SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and
Other Intangible Assets (but not including other GAAP intangibles) at cost
before deducting depreciation or other non-cash reserves less total liabilities,
calculated at least quarterly on a basis consistently applied.

      Net Income means net income as calculated in accordance with GAAP.

      Net Sale Proceeds means in the case of a transaction described in clause
(A) of the definition of Sale, the net proceeds of any such transaction less the
amount of all real estate commissions and closing costs paid by the Operating
Partnership. In the case of a transaction described in clause (B) of such
definition, Net Sale Proceeds means the net proceeds of any such transaction
less the amount of any legal and other selling expenses incurred by the
Operating Partnership in connection with such transaction. In the case of a
transaction described in clause (C) of such definition, Net Sale Proceeds means
the net proceeds of any such transaction actually distributed to the Operating
Partnership from the Joint Venture less any expenses incurred by the Operating
Partnership in connection with such transaction. In the case of a transaction or
series of transactions described in clause (D) of the definition of Sale, Net
Sale Proceeds means the net proceeds of any such transaction less the amount of
all commissions and closing costs paid by the Operating Partnership. In the case
of a transaction described in clause (E) of such definition, Net Sale Proceeds
means the net proceeds of any such transaction less the amount of all selling
costs and other expenses incurred by the Operating Partnership in connection
with such transaction. Net Sale Proceeds shall also include, in the case of any
lease of a Property consisting of a building only, any amounts from tenants,
borrowers or lessees that the Company, as general partner of the Operating
Partnership determines, in its discretion, to be economically equivalent to the
proceeds of a Sale. Net Sale Proceeds shall not include any amounts used to
repay outstanding indebtedness secured by the asset disposed of in the sale.

      NYSE means the New York Stock Exchange.

      Offering means an offering of Stock that is registered with the U.S.
Securities and Exchange Commission, excluding Stock offered under any employee
benefit plan.

      Offering Price means, with respect to each share of Stock, the highest
price at which such Stock was offered by the Company in the Offering pursuant to
which such Stock was issued, without regard to any price reductions for certain
types of purchasers or volume discounts.

      Operating Expenses means all direct and indirect costs and expenses
incurred by the Company, as determined under generally accepted accounting
principles, which in any way are related to the operation of the Company or to
Company business, including advisory fees, but excluding (i) the expenses of
raising capital such as Organizational and Offering Expenses, legal, audit,
accounting, underwriting, brokerage, listing, registration, and other fees,
printing and other such expenses and taxes incurred in connection with the
issuance, distribution, transfer, registration and Listing of the Stock, (ii)
interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves, (v) Acquisition Fees and Acquisition
Expenses, (vi) real estate commissions on the Sale of property, and other
expenses connected with the acquisition and ownership of real estate interests,
mortgage loans, or other property (such as the costs of foreclosure, insurance
premiums, legal services, maintenance, repair, and improvement of property) and
(vii) any incentive fees which may be paid in compliance with the NASAA REIT
Guidelines. The definition of "Operating Expenses" set forth above is intended
to encompass only those expenses which are required to be treated as Operating
Expenses under the NASAA REIT guidelines. As a result, and notwithstanding the
definition set forth above, any expense of the Company which is

                                      -5-



not an Operating Expense under the NASAA REIT Guidelines shall not be treated as
an Operating Expense for purposes hereof.

      Operating Partnership means Cornerstone Operating Partnership II, L.P.
which is the partnership through which the Company may own Properties.

      Operating Partnership Agreement means the Limited Partnership Agreement of
the Operating Partnership, as amended and restated from time to time.

      OP Unit means a unit of limited partnership interest in the Operating
Partnership.

      Organizational and Offering Expenses means any and all costs and expenses
incurred by the Company, the Advisor or any Affiliate of either in connection
with and in preparing the Company for registration of and subsequently offering
and distributing its Stock to the public, which may include but are not limited
to total underwriting and brokerage discounts and commissions (including fees of
the underwriters' attorneys), legal, accounting and escrow fees, expenses for
printing, engraving, amending, supplementing and mailing, distribution costs,
compensation to employees while engaged in registering, marketing and
wholesaling the Stock, telegraph and telephone costs, all advertising and
marketing expenses (including the costs related to investor and broker-dealer
sales meetings), charges of transfer agents, registrars, trustees, escrow
holders, depositories, experts, and fees, expenses and taxes related to the
filing, registration and qualification of the sale of the Securities under
Federal and State laws, including accountants' and attorneys' fees and other
accountable offering expenses. Organization and Offering Expenses may include,
but are not limited to: (i) amounts to reimburse the Advisor for all marketing
related costs and expenses such as compensation to and direct expenses of the
Advisor's employees or employees of the Advisor's Affiliates in connection with
registering and marketing the Stock; (ii) compensation to and direct expenses of
employees of the Dealer Manager while preparing for the offering and marketing
of the Stock and in connection with their wholesaling activities but not Sales
Commissions; (iii) travel and entertainment expenses related to the offering and
marketing of the Stock; (iv) facilities and technology costs and other costs and
expenses associated with the offering and to facilitate the marketing of the
Stock including Web site design and management; (v) costs and expenses of
conducting training and educational conferences and seminars; (vi) costs and
expenses of attending broker-dealer sponsored retail seminars or conferences;
and (vii) payment or reimbursement of bona fide due diligence expenses.

      Person shall mean any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.

      Property or Properties means the real properties or real estate
investments which are acquired by the Company either directly or through the
Operating Partnership, Joint Ventures, partnerships or other entities.

      Property Manager means any entity that has been retained to perform and
carry out at one or more of the Properties property management services.

      Prospectus means any document, notice, or other communication satisfying
the standards set forth in Section 10 of the Securities Act of 1933, as amended,
and contained in a currently effective registration statement filed by the
Company with, and declared effective by, the Securities and Exchange Commission,
or if no registration statement is currently effective, then the Prospectus
contained in the most recently effective registration statement.

      Reinvestment Plan shall have the meaning set forth in Section 8.8 of the
Charter.

      REIT means a corporation, trust or association which is engaged in
investing in equity interests in real estate (including fee ownership and
leasehold interests and interests in partnerships and Joint Ventures holding
real estate) or in loans secured by mortgages on real estate or both and that
qualifies as a real estate investment trust under the REIT Provisions of the
Code.

      REIT Provisions of the Code means Sections 856 through 860 of the Code and
any successor or other provisions of the Code relating to real estate investment
trusts (including provisions as to the attribution of ownership of beneficial
interests therein) and the regulations promulgated thereunder.

                                      -6-



      REIT Stock Amount has the meaning set forth in the Operating Partnership
Agreement.

      Sale or Sales means any transaction or series of transactions whereby: (A)
the Operating Partnership sells, grants, transfers, conveys or relinquishes its
ownership of any Property or portion thereof, including the lease of any
Property consisting of the building only, and including any event with respect
to any Property which gives rise to a significant amount of insurance proceeds
or condemnation awards; (B) the Operating Partnership sells, grants, transfers,
conveys or relinquishes its ownership of all or substantially all of the
interest of the Operating Partnership in any Joint Venture in which it is a
co-venturer or partner; (C) any Joint Venture in which the Operating Partnership
is a co-venturer or partner sells, grants, transfers, conveys or relinquishes
its ownership of any Property or portion thereof, including any event with
respect to any Property which gives rise to insurance claims or condemnation
awards; (D) the Operating Partnership sells, grants, conveys, or relinquishes
its interest in any asset, or portion thereof, including any event with respect
to any asset which gives rise to a significant amount of insurance proceeds or
similar awards; or (E) the Operating Partnership sells or otherwise disposes of
or distributes all of its assets in liquidation of the Operating Partnership.

      Sales Commissions means any and all commissions payable to underwriters,
dealer managers or other broker-dealers in connection with the sale of Stock,
including, without limitation, commissions payable to the Dealer Manager.

      Securities means any class or series of units or shares of the Company or
the General Partner, including common shares or preferred units or shares and
any other evidences of equity or beneficial or other interests, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "Securities" or any certificates of interest,
shares or participations in, temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.

      Securities Act means the Securities Act of 1933, as amended.


      Special 10% Stock Dividend means the 10% stock dividend authorized by the
Board of Directors to be paid to the Stockholders of record on the date that the
Company raises the first $125,000,000 in the Initial Public Offering.


      Sponsor. Any Person directly or indirectly instrumental in organizing,
wholly or in part, the Company or any Person who will control, manage or
participate in the management of the Company, and any Affiliate of such Person.
Not included is any Person whose only relationship with the Company is as that
of an independent leasing agent or property manager of the Company's assets and
whose only compensation is as such. Sponsor does not include wholly independent
third parties such as attorneys, accountants and underwriters whose only
compensation is for professional services. A Person may also be deemed a Sponsor
of the Company (as determined by a majority of the Directors, including a
majority of the Independent Directors) by:

            (a) taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company, either alone or in
conjunction with one or more other Persons;

            (b) receiving a material participation in the Company in connection
with the founding or organizing of the business of the Company, in consideration
of services or property, or both services and property;

            (c) having a substantial number of relationships and contacts with
the Company;

            (d) possessing significant rights to control the Company's
properties;

            (e) receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or

            (f) providing goods or services to the Company on a basis which was
not negotiated at arms length with the Company.

                                      -7-



      Stock means shares of stock of the Company of any class or series,
including Common stock, Preferred Stock or Stock-in-Trust.

      Stock-in-Trust is defined in Section 9.1 of the Charter.

      Stockholders means the registered holders of the Company's Stock.


         Stockholders' 10% Return means, as of any date, an aggregate amount
equal to a 10% cumulative, non-compounded, annual return on Invested Capital;
provided, however, that for purposes of calculating the Stockholders' 10%
Return, any stock dividend shall not be included as a Dividend; and provided
further that for purposes of determining the Stockholders' 10% Return, the
return for each portion of the Invested Capital shall commence for purposes of
the calculation upon the issuance of the shares issued in connection with such
capital.



         Stockholders' 8% Return means, as of any date, an aggregate amount
equal to a 8% cumulative, non-compounded, annual return on Invested Capital;
provided, however, that for purposes of calculating the Stockholders' 8% Return,
any stock dividend shall not be included as a Dividend; and provided further
that for purposes of determining the Stockholders' 8% Return, the return for
each portion of the Invested Capital shall commence for purposes of the
calculation upon the issuance of the shares issued in connection with such
capital.



         Stockholders' 6% Return means, as of any date, an aggregate amount
equal to a 6% cumulative, non-compounded, annual return on Invested Capital;
provided, however, that for purposes of calculating the Stockholders' 6% Return,
any stock dividend shall not be included as a Dividend; and provided further
that for purposes of determining the Stockholders' 6% Return, the return for
each portion of the Invested Capital shall commence for purposes of the
calculation upon the issuance of the shares issued in connection with such
capital.



         Subordinated Incentive Fee Due Upon Listing means the fee payable to
the Advisor under certain circumstances if the Common Stock is listed on a
national securities exchange, or traded on the Nasdaq/NMS in an amount equal to
the percentage below of the Excess Market Value.



         (a)   If (i) the Excess Market Value exceeds (ii) the sum of the
aggregate Invested Capital plus the Stockholders' 10% Return, a fee equal to the
product of 0.15 times such excess amount.



         (b)   If the requirements of paragraph (a) above are not met, and (i)
the Excess Market Value exceeds (ii) the sum of the aggregate Invested Capital
plus the Stockholders' 8% Return, a fee equal to the product of 0.10 times such
excess.



         (c)   If the requirements of paragraphs (a) and (b) above are not met,
and (i) the Excess Market Value exceeds (ii) the sum of the aggregate Invested
Capital plus the Stockholders' 6% Return, a fee equal to the product of 0.05
times such excess.



         The Company shall have the option to pay such fee in the form of cash,
Stock, a promissory note or any combination of the foregoing. The form of
payment shall be as approved by the Board of Directors. In the event the Advisor
Subordinated Incentive Fee Due Upon Listing is paid to the Advisor, thereafter,
the Advisor will not be entitled to receive any payments of Subordinated
Performance Fee Due Upon Termination or Subordinated Share of Net Sale Proceeds.



         Subordinated Performance Fee Due Upon Termination means:



         (a)   If (i) the sum of the Net Appraised Value plus the total
Dividends paid to Stockholders through the Termination Date exceeds (ii) the sum
of the aggregate Invested Capital plus the Stockholders' 10% Return through the
Termination Date, a fee equal to the product of 0.15 times such excess amount.



         (b)   If the requirements of paragraph (a) above are not met, and (i)
the sum of the Net Appraised Value plus the total Dividends paid to Stockholders
through the Termination Date exceeds (ii) the sum of the aggregate Invested
Capital plus the Stockholders' 8% Return through the Termination Date, a fee
equal to the product of 0.10 times such excess.



         (c)   If the requirements of paragraphs (a) and (b) above are not met,
and (i) the sum of the Net Appraised Value plus the total Dividends paid to
Stockholders through the Termination Date exceeds (ii) the sum of the aggregate
Invested Capital plus the Stockholders' 6% Return through the Termination Date,
a fee equal to the product of 0.05 times such excess.


      Subordinated Share of Net Sale Proceeds means a fee equal to the
percentage set forth below of the balance of Net Sale Proceeds, if any,
remaining after Stockholders have received cumulative Dividends and
distributions equal to 100% of the Invested Capital, plus an amount equal to a
cumulative, non-compounded per annum return on the Invested Capital, calculated
on an aggregate weighted average daily basis. The Subordinated Share of Net Sale
Proceeds will be (i) 5% of remaining Net Sale Proceeds if Stockholders have
received cumulative Dividends and distributions equal to 100% of the Invested
Capital plus a 6% cumulative, non-compounded per annum return on the Invested
Capital, (ii) 10% of remaining Net Sale Proceeds if Stockholders have received
cumulative Dividends and distributions equal to 100% of the Invested Capital
plus an 8% cumulative, non-compounded per annum return on the Invested Capital,
or (iii) 15% of remaining Net Sale Proceeds if Stockholders have received a
cumulative Dividends and distributions equal to 100% of the Invested Capital
plus a 10% cumulative, non-compounded per annum return on the Invested Capital.

      Termination Date means the date of termination of this Agreement.

          2. Appointment. The Company, through the powers vested in the Board of
    Directors including a majority of all Independent Directors, hereby appoints
    the Advisor to serve as its advisor and asset manager on the terms and
    conditions set forth in this Agreement, and the Advisor hereby accepts such
    appointment.

          3. Authority of the Advisor.

            (a) General. All rights and powers to manage and control the
day-to-day business and affairs of the Company shall be vested in the Advisor.
The Advisor shall have the power to delegate all or any part of its rights and
powers to manage and control the business and affairs of the Company to such
officers, employees, Affiliates, agents and representatives of the Advisor or
the Company as it may from time to time deem appropriate.

                                      -8-



Any authority delegated by the Advisor to any other Person shall be subject to
the limitations on the rights and powers of the Advisor specifically set forth
in this Advisory Agreement or the Charter.

            (b) Powers of the Advisor. Subject to the express limitations set
forth in this Advisory Agreement and subject to the supervision of the Board,
the power to direct the management, operation and policies of the Company shall
be vested in the Advisor, which shall have the power by itself and shall be
authorized and empowered on behalf and in the name of the Company to carry out
any and all of the objectives and purposes of the Company and to perform all
acts and enter into and perform all contracts and other undertakings that it may
in its sole discretion deem necessary, advisable or incidental thereto to
perform its obligations under this Advisory Agreement.

            (c) Approval by Directors. Notwithstanding the foregoing, any
investment in Assets, including any acquisition of an Asset by the Company or
any investment by the Company in a joint venture, limited partnership or similar
entity owning real properties, will require the prior approval of the Board of
Directors and the Independent Directors. The Advisor will deliver to the Board
of Directors all documents required by it to properly evaluate the proposed
investment.

            (d) Modification or Revocation of Authority of Advisor. The Board
may, at any time upon the giving of notice to the Advisor, modify or revoke the
authority or approvals set forth in Sections 3 and 4, provided however, that
such modification or revocation shall be effective upon receipt by the Advisor
and shall not be applicable to investment transactions to which the Advisor has
committed the Company prior to the date of receipt by the Advisor of such
notification.

          4. Duties and Authority of the Advisor.

            (a) Organizational and Offering Services. The Advisor shall manage
and supervise:

                  (i) development of the product offering, including the
      determination of the specific terms of the Securities to be offered by the
      Company;

                  (ii) the organization of the Company, preparation of all
      offering and related documents, and obtaining of all required regulatory
      approvals of such documents;

                  (iii) along with the Dealer Manager, approval of the
      participating broker dealers and negotiation of the related selling
      agreements;

                  (iv) coordination of the due diligence process relating to
      participating broker dealers and their review of the Prospectus and other
      Offering and Company documents;

                  (v) preparation and approval of all marketing materials
      contemplated to be used by the Dealer Manager or others in the offering of
      the Company's Securities;

                  (vi) along with the Dealer Manager, negotiation and
      coordination with the transfer agent for the receipt, collection,
      processing and acceptance of subscription agreements, commissions, and
      other administrative support functions;

                  (vi) creation and implementation of various technology and
      electronic communications related to the offering of the Company's
      Securities; and

                  (vii) all other services related to organization of the
      Company or the Offering, whether performed and incurred by the Advisor or
      its Affiliates.

            (b) Property Acquisition and Disposition, Asset Management and
Operational Services. The Advisor undertakes to use commercially reasonable
efforts to:

                                      -9-



                  (i) (1) present to the Company potential investment
      opportunities to provide a continuing and suitable investment program
      consistent with (a) the investment objectives and policies of the Company
      as determined and adopted in the Charter of the Company, as amended from
      time to time, and (b) the investment allocation method described at
      Section 12(b) of this Agreement and (2) to manage, administer, promote,
      maintain, and improve the Properties on an overall portfolio basis in a
      diligent manner. The services of the Advisor are to be of scope and
      quality not less than those generally performed by professional asset
      managers of other similar property portfolios. The Advisor shall make
      available the full benefit of the judgment, experience and advice of the
      members of the Advisor's organization and staff with respect to the duties
      it will perform under this Agreement. The Advisor shall also obtain the
      services of Property Managers and Leasing Agents, which may include the
      Advisor or its Affiliates, to manage, promote, and lease the Properties.
      To facilitate the Advisor's performance of these undertakings, but subject
      to the restrictions included in Sections 3 and 7 and to the continuing and
      exclusive authority of the Board over the management of the Company and
      the Operating Partnership, the Company hereby delegates to the Advisor the
      authority to, and the Advisor hereby agrees to, either directly or by
      engaging an Affiliate of the Advisor or an unrelated third party;

                  (ii) manage, and perform and supervise the various
      administrative functions reasonably necessary for the management of the
      day-to-day operations of the Company;

                  (iii) subject to the provisions of Section 3(c) and 4 hereof,
      (A) locate, analyze and select potential investments in Assets, (B)
      structure and negotiate the terms and conditions of transactions pursuant
      to which investment in Assets will be made; (C) perform due diligence on
      prospective investments and summarize the results of such work, (D) make
      investments in Assets on behalf of the Company or the Operating
      Partnership in compliance with the investment objectives and policies of
      the Company; (E) if necessary, arrange for financing and refinancing and
      make other changes in the asset or capital structure of Assets; (F)
      dispose of, reinvest or distribute the proceeds from the sale of, or
      otherwise deal with the investments in, Assets; (G) enter into leases and
      service contracts for Property, including oversight of Affiliated
      companies that perform property management services for the Company, if
      any; (H) oversee non-affiliated property managers and other non-affiliated
      Persons who perform services for the Company; and (I) to the extent
      necessary, perform all other operational functions for the maintenance and
      administration of Properties;

                  (iv) consult with the officers and the Board of Directors of
      the Company and assist the Board of Directors in the formulation and
      implementation of the Company's financial policies, and, as necessary,
      furnish the Board of Directors with advice and recommendations with
      respect to the making of investments consistent with the investment
      objectives and policies of the Company and in connection with borrowings
      proposed to be undertaken by the Company, if any;

                  (v) provide the Board of Directors with periodic reports
      regarding prospective investments which include recommendations and
      supporting documentation required by them to properly evaluate the
      proposed investment;

                  (vi) obtain the prior approval of the Board of Directors
      (including a majority of all Independent Directors) for any and all
      investments in Properties (as well as any financing acquired by the
      Company or the Operating Partnership in connection with such investment);

                  (vii) notify the Board of all proposed material transactions
      before they are completed;

                  (viii) serve as the Company's investment and financial advisor
      and provide the Board with relevant market research and economic and
      statistical data in connection with the Company's assets and investment
      objectives and policies;

                  (ix) obtain reports (which may be prepared by unrelated third
      parties, the Advisor, or its Affiliates), where appropriate, concerning
      the value of investments or contemplated investments of the Company in
      Assets;

                                      -10-



                  (x) formulate and oversee the implementation of strategies for
      the administration, promotion, management, operation, maintenance,
      improvement, financing and refinancing, marketing, leasing, and
      disposition of Assets on an overall portfolio basis;

                  (xi) monitor applicable markets and obtain reports (which may
      be prepared by unrelated third parties, the Advisor or Affiliates) where
      appropriate, concerning the values of existing or prospective investments
      of the Company and monitor and evaluate the performance of the investments
      of the Company;

                  (xii) conduct periodic on-site property visits to some or all
      (as the Advisor deems reasonably necessary) of the Properties to inspect
      the physical condition of the Properties and to evaluate the performance
      of the related Property Managers and Leasing Agents of its duties;

                  (xiii) oversee the performance by the Property Managers of
      their duties, including collection and proper deposits of rental payments
      and payment of Property expenses and maintenance;

                  (xiv) review, analyze and comment upon the operating budgets,
      capital budgets and leasing plans prepared and submitted by each Property
      Manager and leasing agent and aggregate these property budgets into the
      Company's overall budget and financial reports;

                  (xv) review and analyze on-going financial information
      pertaining to each Property and the overall portfolio of Properties;

                  (xvi) deliver to the Board or maintain on behalf of the
      Company copies of all appraisals obtained in connection with the
      investments in Properties;

                  (xvii) obtain and maintain, with respect to any Property and
      to the extent available, title insurance or other assurance of title and
      customary fire, casualty and public liability insurance;

                  (xviii) consult with the officers and Directors and assist the
      Directors in evaluating and obtaining adequate insurance coverage based
      upon risk management determinations;

                  (xix) perform and supervise the various management and
      operational functions related to the Company's investments in Assets;

                  (xx) coordinate and manage relationships between the Company
      and any joint venture partners;

                  (xxi) undertake and perform all services or other activities
      necessary and proper to carry out the investment objectives of the
      Company;

                  (xxii) as reasonably necessary, act, or obtain the services of
      others to act, as attorney-in-fact or agent of the Company in making,
      acquiring and disposing of investments, disbursing, and collecting the
      funds, paying the debts and fulfilling the obligations of the Company and
      handling, prosecuting and settling any claims of the Company, including
      foreclosing and otherwise enforcing mortgage and other liens and security
      interests securing investments;

                  (xxiii) assist in negotiations on behalf of the Company with
      investment banking firms and other institutions or investors for public or
      private sales of Securities of the Company or for other financing on
      behalf of the Company, but in no event in such a way that the Advisor
      shall be acting as a broker, dealer, underwriter or investment advisor in
      Securities of or for the Company;

                  (xxiv) negotiate on behalf of the Company with banks or
      lenders for loans to be made to the Company if necessary, and negotiate on
      behalf of the Company with investment banking firms and broker-dealers or
      negotiate private sales of Securities or obtain loans for the Company if
      necessary, but in

                                      -11-



      no event in such a way so that the Advisor shall be acting as
      broker-dealer or underwriter; and provided, further, that any fees and
      costs payable to third parties incurred by the Advisor in connection with
      the foregoing shall be the responsibility of the Company;

                  (xxv) provide the Company with all necessary cash management
      services;

                  (xxvi) upon request of the Board of Directors, invest and
      reinvest any money of the Company;

                  (xxvii) perform all reporting, record keeping, internal
      controls and similar matters in a manner to allow the Company to comply
      with applicable law including the Sarbanes-Oxley Act;

                  (xxviii) from time to time, or at any time reasonably
      requested by the Board, provide information or make reports to the Board
      related to its performance of services to the Company under this
      Agreement;

                  (xxix) coordinate with the Company's independent accountants
      and auditors the preparation and delivery to the Board of Directors of a
      report not less than annually concerning the Advisor's compliance with
      certain material aspects of this Agreement and as otherwise requested by
      the Board of Directors;

                  (xxx) from time to time, or at any time reasonably requested
      by the Board, make reports to the Board of the investment opportunities it
      has presented to other Advisor-sponsored programs or that it has pursued
      directly or through an Affiliate;

                  (xxxi) provide the officers and Directors with timely updates
      related to the overall regulatory environment affecting the Company, as
      well as managing compliance with such matters, including but not limited
      to compliance with the Sarbanes-Oxley Act of 2002;

                  (xxxii) consult with the Board of Directors relating to the
      corporate governance structure and appropriate policies and procedures
      related thereto;

                  (xxxiii) supervise the preparation on behalf of the Company of
      all reports and returns required by the Securities and Exchange
      Commission, Internal Revenue Service and other state or federal
      governmental agencies;

                  (xxxiv) maintain and preserve the books and records of the
      Company and maintaining the accounting and other record-keeping functions
      at the Property and Company levels;

                  (xxxv) undertake communications with Stockholders in
      accordance with applicable law and the Charter, provided, however, that
      Affiliates of the Advisor have no obligations to the Company other than as
      expressly stated herein, and the Advisor and its Affiliates have no
      obligations to present to the Company any specific investment opportunity
      except as set forth in the Charter and described in the Prospectus;

                  (xxxvi) manage communications with stockholders, including
      answering phone calls, preparing and sending written and electronic
      reports and other communications;

                  (xxxvii) establish technology infrastructure to assist in
      providing shareholder support and service;

                  (xxxviii) appoint and supervise the Company's transfer agent
      in the maintenance of a stock ledger reflecting a record of the
      Stockholders and their ownership of Stock;

                                      -12-



                  (xxxix) manage and coordinate with the transfer agent the
      periodic dividend process and the payments to Stockholders;

                  (xl) investigate, select, and, on behalf of the Company,
      engage and conduct business with such Persons as the Advisor deems
      necessary to the proper performance of its obligations hereunder,
      including but not limited to consultants, accountants, lenders, technical
      advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow
      agents, depositaries, custodians, agents for collection, insurers,
      insurance agents, banks, builders, developers, construction companies,
      property owners, mortgagors, and any and all agents for any of the
      foregoing, including Affiliates of the Advisor, and Persons acting in any
      other capacity deemed by the Advisor necessary or desirable for the
      performance of any of the foregoing services, including but not limited to
      entering into contracts in the name of the Company with any of the
      foregoing; and

                  (xli) do all things necessary to assure its ability to render
      the services described in this Agreement.

The Advisor has a fiduciary responsibility to the Company and to the
Stockholders in carrying out its duties under this Agreement. In providing
advice and services hereunder, the Advisor shall not (i) engage in any activity
which would require it to be registered as an "Investment Advisor," as that term
is defined in the Investment Advisors Act of 1940 or in any state securities law
or (ii) cause the Company to make such investments as would cause the Company to
become an "Investment Company," as that term is defined in the Investment
Company Act of 1940.

          5. Bank Accounts. The Advisor may establish and maintain one or more
    bank accounts in its own name for the account of the Company or in the name
    of the Company and may collect and deposit into any such account or
    accounts, and disburse from any such account or accounts, any money on
    behalf of the Company, under such terms and conditions as the Board may
    approve, provided that no funds shall be commingled with the funds of the
    Advisor; and the Advisor shall from time to time render appropriate
    accountings of such collections and payments to the Board and to the
    auditors of the Company.

          6. Records; Access. The Advisor shall maintain appropriate records of
    all its activities hereunder and make such records available for inspection
    by the Board and by counsel, auditors and authorized agents of the Company,
    at any time or from time to time during normal business hours. The Advisor,
    in the conduct of its responsibilities to the Company, shall maintain
    adequate and separate books and records for the Company's operations in
    accordance with United States generally accepted accounting principles
    ("GAAP"), which shall be supported by sufficient documentation to ascertain
    that such books and records are properly and accurately recorded. Such books
    and records shall be the property of the Company. Such books and records
    shall include all information necessary to calculate and audit the fees or
    reimbursements paid under this Agreement. The Advisor shall utilize
    procedures to attempt to ensure such control over accounting and financial
    transactions as is reasonably required to protect the Company's assets from
    theft, error or fraudulent activity. All financial statements that the
    Advisor delivers to the Company shall be prepared on an accrual basis in
    accordance with GAAP, except for special financial reports which by their
    nature require a deviation from GAAP. The Advisor shall maintain necessary
    liaison with the Company's independent accountants and shall provide such
    accountants with such reports and other information as the Company shall
    request. The Advisor shall at all reasonable times have access to the books
    and records of the Company.

          7. Limitations on Activities. Anything else in this Agreement to the
    contrary notwithstanding, the Advisor shall refrain from taking any action
    which, in its sole judgment made in good faith, would (a) adversely affect
    the status of the Company as a REIT, (b) subject the Company to regulation
    under the Investment Company Act of 1940, as amended, (c) violate any law,
    rule, regulation or statement of policy of any governmental body or agency
    having jurisdiction over the Company, its Stock or its other Securities, or
    (d) violate the Charter or Bylaws, except if such action shall be ordered by
    the Board, in which case the Advisor shall notify promptly the Board of the
    Advisor's judgment of the potential impact of such action and shall refrain
    from taking such action until it receives further clarification or
    instructions from the Board. In such event the Advisor shall have no
    liability for acting in accordance with the specific instructions of the
    Board so given. Notwithstanding the foregoing, the Advisor, its directors,
    officers, employees and stockholders, and stockholders, directors and
    officers of the Advisor's Affiliates shall not be liable to the Company or
    to the Board or

                                      -13-



    Stockholders for any act or omission by the Advisor, its directors,
    officers or employees, or stockholders, directors or officers of the
    Advisor's Affiliates except as provided in this Agreement.

          8. Relationship With Directors. Subject to Section 7 of this Agreement
    and to restrictions set forth in the Charter or deemed advisable with
    respect to the qualification of the Company as a REIT, directors, officers
    and employees of the Advisor or an Affiliate of the Advisor or any corporate
    parents of an Affiliate, or directors, officers or stockholders of any
    director, officer or corporate parent of an Affiliate may serve as a
    Director and as officers of the Company, except that no officer or employee
    of the Advisor or its Affiliates who also is a Director or officer of the
    Company shall receive any compensation from the Company for serving as a
    Director or officer other than reasonable reimbursement for travel and
    related expenses incurred in attending meetings of the Directors. Directors
    who are not Independent Directors will be individuals nominated by the
    Advisor, provided that such director nominees are either directors of the
    Advisor or have been elected by the board of directors of the Advisor as
    executive officers of the Advisor.

          9. Fees.

            (a) Advisor Acquisition Fees. The Company will pay the Advisor, as
compensation for services rendered in connection with the investigation,
selection and acquisition (by purchase, investment or exchange) of Properties,
Advisor Acquisition Fees in an amount equal to 2.0% of Gross Proceeds, other
than Gross Proceeds from Stock purchased under the Reinvestment Plan, payable by
the Company upon the Company's receipt of Gross Proceeds; provided that upon
termination of this Agreement, the Advisor will be obligated to reimburse the
Company for any Advisor Acquisition Fee that has not been allocated to the
purchase price of Company Properties as provided for in Section 5.2 of the
Charter.


            (b) Asset Management Fee. Subject to the overall limitations
contained below in this Section 9(c), commencing on the date hereof, the Company
shall pay the Advisor for the asset management services included in the services
described in Section 4 a monthly fee (the "Asset Management Fee") in an amount
equal to one-twelfth of 1.0% of the Average Invested Assets, calculated on a
monthly basis as of the last day of each month. The Asset Management Fee shall
be reduced if the Independent Directors determine that compensation to be paid
to the Advisor is not reasonable in relation to the nature and quality of
services performed and the investment performance of the Company and that the
provisions of the Advisory Agreement are being carried out in accordance with
Section 4.2 of the Charter.


            (c) Property Management and Leasing Fees. If the Company retains the
Advisor or its Affiliates to manage or lease any of its Properties, the Company
will pay the Advisor or its Affiliates a market-based fee which is what other
management or leasing companies generally charge for the management or leasing
of similar properties, which may include reimbursement for the costs and
expenses the Advisor or its Affiliates incurs in managing or leasing the
Properties.

            (d) Disposition Fees. If the Advisor or an Affiliate provides a
substantial amount of the services (as determined by a majority of the
Directors, including a majority of the Independent Directors) in connection with
the Sale of one or more Properties, the Advisor or such Affiliate shall receive
at closing a Disposition Fee equal to 3.0% of the sales price of such Property
or Properties. Any Disposition Fee payable under this section may be paid in
addition to real estate commissions paid to non-Affiliates, provided that the
total real estate commissions (including such Disposition Fee) paid to all
Persons by the Company for each Property shall not exceed an amount equal to the
lesser of (i) 6.0% of the aggregate Contract Sales Price of each Property or
(ii) the Competitive Real Estate Commission for each Property. The Company will
pay the Disposition Fees for a property at the time the property is sold.

            (e) Subordinated Share of Net Sale Proceeds. The Subordinated Share
of Net Sale Proceeds shall be payable to the Advisor at the time or times that
the Company determines that the Subordinated Share of Net Sale Proceeds has been
earned by the Advisor. In the case of multiple advisors, advisors and Affiliates
shall be allowed incentive fees in accordance with the foregoing limitation,
provided such fees are distributed by a proportional method reasonably designed
to reflect the value added to the Company's Assets by each respective advisor or
Affiliate.

                                      -14-



            (f) Subordinated Incentive Fee Due Upon Listing. Upon Listing, the
Advisor shall be entitled to the Subordinated Incentive Fee Upon Listing. The
Subordinated Incentive Fee Due Upon Listing shall be payable to the Advisor
during the thirty (30) day period following eighteen (18) months after Listing.
The Company shall have the option to pay such fee in the form of cash, Stock, a
promissory note or any combination of the foregoing, as determined by the Board
of Directors. In the event the Subordinated Incentive Fee Due Upon Listing is
paid to the Advisor following Listing, the Advisor will not be entitled to
receive any payments of Subordinated Performance Fee Upon Termination or
Subordinated Share of Net Sale Proceeds following receipt of the Subordinated
Incentive Fee Due Upon Listing.

            (g) Changes to Fee Structure. In the event of Listing, the Company
and the Advisor shall negotiate in good faith to establish a fee structure
appropriate for a perpetual-life entity. A majority of the Independent Directors
must approve the new fee structure negotiated with the Advisor. In negotiating a
new fee structure, the Independent Directors shall consider all of the factors
they deem relevant, including, but not limited to: (i) the amount of the
advisory fee in relation to the asset value, composition and profitability of
the Company's portfolio; (ii) the success of the Advisor in generating
opportunities that meet the investment objectives of the Company; (iii) the
rates charged to other REITs and to investors other than REITs by advisors
performing the same or similar services; (iv) additional revenues realized by
the Advisor and its Affiliates through their relationship with the Company,
including loan administration, underwriting or broker commissions, servicing,
engineering, inspection and other fees, whether paid by the REIT or by others
with whom the REIT does business; (v) the quality and extent of service and
advice furnished by the Advisor; (vi) the performance of the investment
portfolio of the REIT, including income, conversion or appreciation of capital,
and number and frequency of problem investments; and (vii) the quality of the
Property portfolio of the Company in relationship to the investments generated
by the Advisor for its own account. The new fee structure can be no more
favorable to the Advisor than the current fee structure.

          10. Expenses.

            (a) Reimbursable Expenses. In addition to the compensation paid to
the Advisor pursuant to Section 9 hereof, the Company shall pay directly or
reimburse the Advisor for all of the expenses paid or incurred by the Advisor
(to the extent not reimbursable by another party, such as the Dealer Manager) in
connection with the services it provides to the Company pursuant to this
Agreement, including, but not limited to:

                  (i) the Organization and Offering Expenses; provided, however,
      that within 60 days after the end of the month in which an Offering
      terminates, the Advisor shall reimburse the Company to the extent (i)
      Capped O&O Expenses borne by the Company exceed 5.0% of the Gross Proceeds
      raised in a completed Offering and (ii) Organization and Offering Expenses
      borne by the Company (including selling commissions, dealer manager fees
      and non-accountable due diligence expense allowance but not including
      Acquisition Fees or Acquisition Expenses) exceed 15% of the Gross Proceeds
      raised in a completed Offering;

                  (ii) Subject to the limitation set forth below, Acquisition
      Expenses incurred by the Advisor or its Affiliates;

                  (iii) Subject to the limitation set forth below, Acquisition
      Fees and Acquisition Expenses payable to unaffiliated Persons incurred in
      connection with the selection and acquisition of Properties;

                  (iv) the actual out-of-pocket cost of goods and services used
      by the Company and obtained from entities not affiliated with the Advisor
      including brokerage and other fees paid in connection with the purchase,
      operation and sale of Assets;

                  (v) interest and other costs for borrowed money, including
      discounts, points and other similar fees;

                  (vi) taxes and assessments on income or Property and taxes as
      an expense of doing business and any taxes otherwise imposed on the
      Company, its business or income;

                                      -15-



                  (vii) costs associated with insurance required in connection
      with the business of the Company or by the Board;

                  (viii) expenses of managing and operating Properties owned by
      the Company, whether payable to an Affiliate of the Company or a
      non-affiliated Person;

                  (ix) all expenses in connection with payments to Directors and
      meetings of the Directors and Stockholders;

                  (x) expenses associated with Listing or with the issuance and
      distribution of Securities other than the Stock issued in the Initial
      Public Offering, such as selling commissions and fees, advertising
      expenses, taxes, legal and accounting fees, listing and registration fees;

                  (xi) expenses connected with payments of Distributions in cash
      or otherwise made or caused to be made by the Company to the Stockholders;

                  (xii) expenses of organizing, converting, modifying, merging,
      liquidating or dissolving the Company or of amending the Charter or the
      Bylaws;

                  (xiii) expenses of maintaining communications with
      Stockholders, including the cost of preparation, printing, and mailing
      annual reports and other Stockholder reports, proxy statements and other
      reports required by governmental entities;

                  (xiv) administrative service expenses, including all direct
      and indirect costs and expenses incurred by Advisor in fulfilling its
      duties hereunder and including personnel costs; provided, however, that no
      reimbursement shall be made for costs of personnel to the extent that such
      personnel perform services in transactions for which the Advisor receives
      the Acquisition Fee or Disposition Fee. Such direct and indirect costs and
      expenses may include reasonable wages and salaries and other
      employee-related expenses of all employees of Advisor who are engaged in
      the management, administration, operations, and marketing of the Company,
      including taxes, insurance and benefits relating to such employees, and
      legal, travel and other out-of-pocket expenses which are directly related
      to their services provided hereunder;

                  (xv) audit, accounting and legal fees, and other fees for
      professional services relating to the operations of the Company and all
      such fees incurred at the request, or on behalf of, the Independent
      Directors or any committee of the Board of Directors;

                  (xvi) out-of-pocket expenses of maintaining communications
      with Shareholders, including the cost of preparation, printing, and
      mailing annual reports and other Shareholder reports, proxy statements and
      other reports required by governmental entities;

                  (xvii) out-of-pocket costs for the Company to comply with all
      applicable laws, regulation and ordinances; and

                  (xviii) all other out-of-pocket costs necessary for the
      operation of the Company and its Assets incurred by the Advisor in
      performing its duties hereunder.

The Company shall also reimburse the Advisor or Affiliates of the Advisor for
all direct and indirect costs and expenses incurred on behalf of the Company
prior to the execution of this Agreement. In the event the Company does not
raise $1,000,000 in its Initial Public Offering, the Advisor will not be
reimbursed for Organizational and Offering Expenses.

      The total of all Acquisition Fees and Acquisition Expenses paid by the
Company in connection with the purchase of a Property by the Company shall be
reasonable, and shall in no event exceed an amount equal to 6% of the Contract
Purchase Price, or in the case of a mortgage loan, 6% of the funds advanced;
provided, however, that a

                                      -16-



majority of the Directors (including the majority of the Independent Directors)
not otherwise interested in the transaction may approve fees and expenses in
excess of these limits if they determine the transaction to be commercially
competitive, fair and reasonable to the Company.

            (b) Other Services. Should the Directors request that the Advisor or
any director, officer or employee thereof render services for the Company other
than set forth in Section 4, such services shall be separately compensated at
such rates and in such amounts as are agreed by the Advisor and a majority of
the Independent Directors, subject to the limitations contained in the Charter,
and shall not be deemed to be services pursuant to the terms of this Agreement.

            (c) Timing of and Limitations on Reimbursements.

                  (i) Expenses incurred by the Advisor on behalf of the Company
      and payable pursuant to this Section 10 shall be reimbursed no less
      frequently than monthly to the Advisor. The Advisor shall prepare a
      statement documenting the expenses of the Company during each quarter, and
      shall deliver such statement to the Company within 45 days after the end
      of each quarter. Subject to the Excess Expense Guidelines, the Company may
      advance funds to the Advisor for expenses the Advisor anticipates will be
      incurred by the Advisor within the current month and any such advances
      shall be deducted from the amounts reimbursed by the Company to the
      Advisor.

                  (ii) Notwithstanding anything else in this Section 10 to the
      contrary, the expenses enumerated in this Section 10 shall not become
      reimbursable to the Advisor unless and until the Company has raised $1
      million in the Initial Public Offering.

                  (iii) The Company shall not reimburse the Advisor at the end
      of any fiscal quarter Operating Expenses that, in the four consecutive
      fiscal quarters then ended (the "Expense Year") exceed (the "Excess
      Amount") the greater of 2% of Average Invested Assets or 25% of NASAA Net
      Income (the "Excess Expense Guidelines") for such year unless a majority
      of the Independent Directors determines that such excess was justified,
      based on unusual and nonrecurring factors which they deem sufficient. If a
      majority of the Independent Directors does not approve such excess as
      being so justified, any Excess Amount paid to the Advisor during a fiscal
      quarter shall be repaid to the Company. If a majority of the Independent
      Directors determines such excess was justified, then within 60 days after
      the end of any fiscal quarter of the Company for which total reimbursed
      Operating Expenses for the Expense Year exceed the Excess Expense
      Guidelines, the Advisor, at the direction of the a majority of the
      Independent Directors, shall send to the stockholders a written disclosure
      of such fact, together with an explanation of the factors the a majority
      of the Independent Directors considered in determining that such excess
      expenses were justified. The Company will ensure that such determination
      will be reflected in the minutes of the meetings of the Board of
      Directors. All figures used in the foregoing computation shall be
      determined in accordance with generally accepted accounting principles
      applied on a consistent basis.

          11. Fidelity Bond. The Advisor shall endeavor to maintain a fidelity
    bond for the benefit of the Company which bond shall insure the Company from
    losses of up to $1,000,000 per occurrence and shall be of the type
    customarily purchased by entities performing services similar to those
    provided to the Company by the Advisor.

            12. Other Activities of the Advisor.

            (a) General. Nothing herein contained shall prevent the Advisor from
engaging in other activities, including, without limitation, the rendering of
advice to other Persons (including other REITs) and the management of other
programs advised, sponsored or organized by the Advisor or its Affiliates; nor
shall this Agreement limit or restrict the right of any director, officer,
employee, or stockholder of the Advisor or its Affiliates to engage in any other
business or to render services of any kind to any other partnership,
corporation, firm, individual, trust or association. The Advisor may, with
respect to any investment in which the Company is a participant, also render
advice and service to each and every other participant therein. The Advisor
shall report to the Board the existence of any condition or circumstance,
existing or anticipated, of which it has knowledge, which

                                      -17-



creates or could create a conflict of interest between the Advisor's obligations
to the Company and its obligations to or its interest in any other partnership,
corporation, firm, individual, trust or association.

            (b) Policy with Respect to Allocation of Investment Opportunities.
Before the Advisor presents an investment opportunity that would in its judgment
be suitable for the Company to another Advisor-sponsored program, the Advisor
shall determine in its sole discretion that the investment opportunity is more
suitable for such other program than for the Company based on factors such as
the following: as the investment objectives and criteria of each program, the
cash requirements and anticipated cash flow of each entity, the size of the
investment opportunity, the effect of the acquisition both on diversification of
each entity's investments, the income tax consequences of the purchase on each
entity, the policies of each program relating to leverage, the amount of funds
available to each program, and the length of time such funds have been available
for investment. In the event that an investment opportunity becomes available
that is, in the sole discretion of the Advisor, equally suitable for both the
Company and another Advisor-sponsored program, then the Advisor may offer the
other program the investment opportunity if it has had the longest period of
time elapse since it was offered an investment opportunity. The Advisor will use
its reasonable efforts to fairly allocate investment opportunities in accordance
with such allocation method and will promptly disclose any material deviation
from such policy or the establishment of a new policy, which shall be allowed
provided (1) the Board is provided with notice of such policy at least 60 days
prior to such policy becoming effective and (2) such policy provides for the
reasonable allocation of investment opportunities among such programs. The
Advisor shall provide the Independent Directors with any information reasonably
requested so that the Independent Directors can insure that the allocation of
investment opportunities is applied fairly. Nothing herein shall be deemed to
prevent the Advisor or an Affiliate from pursuing an investment opportunity
directly rather than offering it to the Company or another Advisor-sponsored
program so long as the Advisor is fulfilling its obligation to present a
continuing and suitable investment program to the Company which is consistent
with the investment policies and objectives of the Company. If a subsequent
development, such as a delay in the closing of a property or a delay in the
construction of a property, causes any such investment, in the opinion of the
Board of Directors and the Advisor, to be more appropriate for an entity other
than the entity which committed to make the investment, however, the Advisor has
the right to agree that the other entity affiliated with the Advisors or its
Affiliates may make the investment.

          13. Relationship of Advisor and Company. The Company and the Advisor
    are not partners or joint venturers with each other, and nothing in this
    Agreement shall be construed to make them such partners or joint venturers
    or impose any liability as such on either of them.

          14. Representations and Warranties.

            (a) Of the Company. To induce the Advisor to enter into this
Agreement, the Company hereby represents and warrants that:

                  (i) The Company is a corporation, duly organized, validly
      existing and in good standing under the laws of the State of Maryland with
      all requisite corporate power and authority and all material licenses,
      permits and authorizations necessary to carry out the transactions
      contemplated by this Agreement.

                  (ii) The Company's execution, delivery and performance of this
      Agreement has been duly authorized by the Board of Directors including a
      majority of all Independent Directors of the Company. This Agreement
      constitutes the valid and binding obligation of the Company, enforceable
      against the Company in accordance with its terms. The Company's execution
      and delivery of this Agreement and its fulfillment of and compliance with
      the respective terms hereof do not and will not (i) conflict with or
      result in a breach of the terms, conditions or provisions of, (ii)
      constitute a default under, (iii) result in the creation of any lien,
      security interest, charge or encumbrance upon the assets of the Company
      pursuant to, (iv) give any third party the right to modify, terminate or
      accelerate any obligation under, (v) result in a violation of or (vi)
      require any authorization, consent, approval, exception or other action by
      or notice to any court or administrative or governmental body pursuant to,
      the Charter or Bylaws or any law, statute, rule or regulation to which the
      Company is subject, or any agreement, instrument, order, judgment or
      decree by which the Company is bound, in any such case in a manner that

                                      -18-



      would have a material adverse effect on the ability of the Company to
      perform any of its obligations under this Agreement.

            (b) Of the Advisor. To induce the Company to enter into this
Agreement, the Advisor represents and warrants that :

                  (i) The Advisor is a limited liability company, duly
      organized, validly existing and in good standing under the laws of the
      State of California with all requisite corporate power and authority and
      all material licenses, permits and authorizations necessary to carry out
      the transactions contemplated by this Agreement.

                  (ii) The Advisor's execution, delivery and performance of this
      Agreement has been duly authorized. This Agreement constitutes a valid and
      binding obligation of the Advisor, enforceable against the Advisor in
      accordance with its terms. The Advisor's execution and delivery of this
      Agreement and its fulfillment of and compliance with the respective terms
      hereof do not and will not (i) conflict with or result in a breach of the
      terms, conditions or provisions of, (ii) constitute a default under, (iii)
      result in the creation of any lien, security interest, charge or
      encumbrance upon the Advisor's assets pursuant to, (iv) give any third
      party the right to modify, terminate or accelerate any obligation under,
      (v) result in a violation of or (vi) require any authorization, consent,
      approval, exemption or other action by or notice to any court or
      administrative or governmental body pursuant to, the Advisor's articles of
      incorporation or bylaws, or any law, statute, rule or regulation to which
      the Advisor is subject, or any agreement, instrument, order, judgment or
      decree by which the Advisor is bound, in any such case in a manner that
      would have a material adverse effect on the ability of the Advisor to
      perform any of its obligations under this Agreement.

                  (iii) The Advisor has received copies of the Charter, the
      Bylaws, and the Registration Statement and of the Operating Partnership's
      limited partnership agreement and is familiar with the terms thereof,
      including without limitation the investment limitations included therein.
      The Advisor warrants that it will use reasonable care to avoid any act or
      omission that would conflict with the terms of the Charter, the Bylaws,
      the Registration Statement, or the Operating Partnership's limited
      partnership agreement in the absence of the express direction of a
      majority of the Independent Directors.

          15. Term; Termination of Agreement. This Agreement shall continue in
    force until the first anniversary of the date hereof, subject to an
    unlimited number of successive one-year renewals upon mutual consent of the
    parties. The Company, acting through the Board, will evaluate the
    performance of the Advisor annually before renewing the Agreement, and each
    such renewal shall be for a term of no more than one year.

          16. Termination

            (a) Termination by Either Party. This Agreement may be terminated
upon 60 days written notice without cause or penalty, by either party (by a
majority of the Independent Directors or a majority of the board of directors of
the Advisor or its managing member, as the case may be).

            (b) Termination by the Advisor. This Agreement may be terminated
immediately by the Advisor in the event of (i) the bankruptcy of the Company or
commencement of any bankruptcy or similar insolvency proceedings of the Company,
or (ii) any material breach of this Agreement by the Company not cured by the
Company within 30 days after written notice thereof.

The provisions of Sections 1, 6, 7, and 17 through 32 survive termination of
this Agreement.

          17. Payments to and Duties of Advisor upon Termination. Payments to
    the Advisor pursuant to this Section 17 shall be subject to the Excess
    Expenses Guidelines to the extent applicable.

                                      -19-



            (a) After the Termination Date, the Advisor shall not be entitled to
compensation for further services hereunder except it shall be entitled to
receive from the Company within 30 days after the effective date of such
termination the following:

                  (i) all unpaid reimbursable expenses and all earned but unpaid
      fees payable to the Advisor prior to termination of this Agreement; and

                  (ii) the Subordinated Performance Fee Due Upon Termination,
      provided that no Subordinated Performance Fee Due Upon Termination will be
      paid if the Company has paid or is obligated to pay the Subordinated
      Incentive Fee,

            (b) In the event this Agreement expires without the consent of the
Advisor, or is terminated for any reason other than by the Advisor pursuant to
Section 16(a) or Section 16(b), the Company shall, at the election of the
Advisor or any of its Affiliates and at any time (and from time to time) after
the effective date of such expiration or termination, purchase all or a portion
of the OP Units held by the Advisor and its Affiliates subject to Board approval
and applicable law. The purchase price shall be paid in cash or, at the election
of the seller, Stock, and shall be payable within 120 days after the Advisor or
its Affiliates (as applicable) gives the Company written notice of its desire to
sell all or a portion of the OP Units held by such Person to the Company. The
Company agrees to keep a sufficient number of authorized but unissued shares of
Stock available for issuance pursuant to this Section 17(b) and shall issue
shares of Stock as may be required hereunder. The purchase price of the OP Units
sold to the Company pursuant to this Section 17(b) shall be (i) in the event the
seller elects to receive cash, the Cash Amount the seller would receive under a
redemption of such interests under Section 9.7 of the Operating Partnership
Agreement assuming the Company paid cash for such redemption, or (ii) in the
event the seller elects to receive Stock, the REIT Stock Amount the seller would
receive under a redemption of such interests under Section 9.7 of the Operating
Partnership Agreement assuming the Company paid Stock for such redemption.

            (c) The Advisor shall promptly upon termination:

                  (i) pay over to the Company all money collected and held for
      the account of the Company pursuant to this Agreement, after deducting any
      accrued compensation and reimbursement for its expenses to which it is
      then entitled;

                  (ii) deliver to the Board a full accounting, including a
      statement showing all payments collected by it and a statement of all
      money held by it, covering the period following the date of the last
      accounting furnished to the Board;

                  (iii) deliver to the Board all assets, including Properties,
      and documents of the Company then in the custody of the Advisor; and

                  (iv) cooperate with the Company to provide an orderly
      management transition.

          18. Assignment to an Affiliate. This Agreement may be assigned by the
    Advisor to an Affiliate with the approval of a majority of the Independent
    Directors. The Advisor may assign any rights to receive fees or other
    payments under this Agreement without obtaining the approval of the
    Directors. This Agreement shall not be assigned by the Company without the
    consent of the Advisor, except in the case of an assignment by the Company
    to a corporation or other organization which is a successor to all of the
    assets, rights and obligations of the Company, in which case such successor
    organization shall be bound hereunder and by the terms of said assignment in
    the same manner as the Company is bound by this Agreement.


          19. Indemnification by the Company. The Company shall indemnify and
    hold harmless the Advisor and its Affiliates, including their respective
    officers, directors, partners and employees, from all liability, claims,
    damages or losses arising in the performance of their duties hereunder, and
    related expenses, including reasonable attorneys' fees, to the extent such
    liability, claims, damages or losses and related expenses are not fully
    reimbursed by insurance, subject to any limitations imposed by the laws of
    the State of Maryland and only if all of the following conditions are met:

            (a) the directors or the Advisor or its Affiliates have
determined, in good faith, that the course of conduct that caused the loss or
liability was in the best interests of the Company.

            (b) the Advisor or its Affiliates were acting on behalf of or
performing services for the Company.

            (c) such liability or loss was not the result of negligence or
misconduct by the Advisor or its Affiliates.

            (d) such indemnification or agreement to hold harmless is
recoverable only out of the Company's Net Asset Value and not from its
Stockholders.

            (e) with respect to losses, liabilities or expenses arising from
or out of an alleged violation of federal or state securities laws, one or more
of the following conditions are met:

                (1) there has been a successful adjudication on the merits
of each count involving alleged securities law violations as to the particular
indemnitee.

                (2) such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction as to the particular indemnitee.

                (3) a court of competent jurisdiction approves a settlement
of the claims against a particular indemnitee and finds that indemnification of
the settlement and the related costs should be made, and the court considering
the request for indemnification has been advised of the position of the
Securities and Exchange Commission and of the published position of any state
securities regulatory authority in which securities of the Company were offered
or sold as to indemnification for violations of securities laws.

          Notwithstanding the foregoing, the Advisor shall not be entitled to
indemnification or be held harmless

                                      -20-



    pursuant to this Section 19 for any activity which the Advisor shall be
    required to indemnify or hold harmless the Company pursuant to Section 20.
    Any indemnification of the Advisor may be made only out of the net assets
    of the Company, including insurance proceeds, and not from Stockholders.

          20. Indemnification by Advisor. The Advisor shall indemnify and hold
    harmless the Company from contract or other liability, claims, damages,
    taxes or losses and related expenses including attorneys' fees, to the
    extent that such liability, claims, damages, taxes or losses and related
    expenses are not fully reimbursed by insurance and are incurred by reason of
    the Advisor's bad faith, fraud, willful misfeasance, misconduct, or reckless
    disregard of its duties, but Advisor shall not be held responsible for any
    action of the Directors in declining to follow any advice or recommendation
    given by the Advisor.

          21. Advisor's Liability.

            (a) Notwithstanding any other provisions of this Agreement, in no
event shall the Company make any claim against the Advisor, or its Affiliates,
on account of any good faith interpretation by Advisor of the provisions of this
Agreement (even if such interpretation is later determined to be a breach of
this Agreement) or any alleged errors in judgment made in good faith and in
accordance with this Agreement in connection with the operations of the Company
hereunder by the Advisor or the performance of any advisory or technical
services provided by or arranged by the Advisor. The provisions of this Section
21(a) shall not be deemed to release the Advisor from liability for its gross
negligence or reckless disregard of its duties.

            (b) The Company shall not object to any expenditures made by the
Advisor in good faith in the course of its performance of its obligations under
this Agreement or in settlement of any claim arising out of the operation of the
Company unless such expenditure is specifically prohibited by this Agreement or
the Charter. The provisions of this Section 21(b) shall not be deemed to release
the Advisor from liability for its gross negligence or reckless disregard of its
duties.

            (c) In no event will either party be liable for damages based on
loss of income, profit or savings or indirect, incidental, consequential,
exemplary, punitive or special damages of the other party or person, including
third parties, even if such party has been advised of the possibility of such
damages in advance, and all such damages are expressly disclaimed. In no event
will the Advisor's aggregate liability under this Agreement ever exceed the
total amount of fees it actually receives from the Company pursuant to Article
9.

          22. Notices. Any notice, report or other communication required or
    permitted to be given hereunder shall be in writing unless some other method
    of giving such notice, report or other communication is required by the
    Charter, the Bylaws, or accepted by the party to whom it is given, and shall
    be given by being delivered by hand or by overnight mail or other overnight
    delivery service to the addresses set forth herein:

To the Board and to the Company:          Cornerstone Core Properties REIT, Inc.
                                          4590 MacArthur Blvd. Suite 610
                                          Newport Beach, California 92660
                                          Attention: Chief Executive Officer

To the Advisor:                           Cornerstone Realty Advisors, LLC
                                          4590 MacArthur Blvd, Suite 610
                                          Newport Beach, California 92660
                                          Attention:  Managing Member

Either party may at any time give notice in writing to the other party of a
change in its address for the purposes of this Section 22.

          23. Modification. This Agreement shall not be changed, modified,
    terminated, or discharged, in whole or in part, except by an instrument in
    writing signed by both parties hereto, or their respective successors or
    assignees.

                                      -21-



          24. Severability. The provisions of this Agreement are independent of
    and severable from each other, and no provision shall be affected or
    rendered invalid or unenforceable by virtue of the fact that for any reason
    any other or others of them may be invalid or unenforceable in whole or in
    part.

          25. Construction. The provisions of this Agreement shall be construed
    and interpreted in accordance with the laws of the State of California.

          26. Entire Agreement. This Agreement contains the entire agreement and
    understanding among the parties hereto with respect to the subject matter
    hereof, and supersedes all prior and contemporaneous agreements,
    understandings, inducements and conditions, express or implied, oral or
    written, of any nature whatsoever with respect to the subject matter hereof.
    The express terms hereof control and supersede any course of performance
    and/or usage of the trade inconsistent with any of the terms hereof. This
    Agreement may not be modified or amended other than by an agreement in
    writing.

          27. Indulgences, Not Waivers. Neither the failure nor any delay on the
    part of a party to exercise any right, remedy, power or privilege under this
    Agreement shall operate as a waiver thereof, nor shall any single or partial
    exercise of any right, remedy, power or privilege preclude any other or
    further exercise of the same or of any other right, remedy, power or
    privilege, nor shall any waiver of any right, remedy, power or privilege
    with respect to any occurrence be construed as a waiver of such right,
    remedy, power or privilege with respect to any other occurrence. No waiver
    shall be effective unless it is in writing and is signed by the party
    asserted to have granted such waiver.

          28. Gender. Words used herein regardless of the number and gender
    specifically used, shall be deemed and construed to include any other
    number, singular or plural, and any other gender, masculine, feminine or
    neuter, as the context requires.

          29. Titles Not to Affect Interpretation. The titles of paragraphs and
    subparagraphs contained in this Agreement are for convenience only, and they
    neither form a part of this Agreement nor are they to be used in the
    construction or interpretation hereof.

          30. Execution in Counterparts. This Agreement may be executed in any
    number of counterparts, each of which shall be deemed to be an original as
    against any party whose signature appears thereon, and all of which shall
    together constitute one and the same instrument. This Agreement shall become
    binding when the counterparts hereof, taken together, bear the signatures of
    all of the parties reflected hereon as the signatories.


          31. Initial Investment. Terry G. Roussel, an Affiliate of the Advisor,
    has purchased 125 shares of Common Stock for $1,000. The Advisor has
    purchased OP Units for $200,000. The advisor is prohibited from exchanging
    the OP Units purchased by it on July 15, 2005 for $200,000 cash at any time
    prior to July 15, 2007. The Advisor may not sell any of the OP Units (or the
    Common Stock received in exchange for the OP Units, if any) while the
    Advisor acts in such advisory capacity to the Company, provided, that such
    Common Stock may be transferred to Affiliates of the Advisor. Affiliates of
    the Advisor may not sell any of the OP Units (or the Common Stock received
    in exchange for the OP Units, if any) while the Advisor acts in such
    advisory capacity to the Company, provided, that such OP Units (or the
    Common Stock received in exchange for the OP Units, if any) may be
    transferred to the Advisor or other Affiliates of the Advisor. The
    restrictions included above shall not apply to any other Securities acquired
    by the Advisor or its Affiliates. With respect to any Securities owned by
    the Advisor, the Directors, or any of their Affiliates, neither the Advisor,
    nor the Directors, nor any of their Affiliates may vote or consent on
    matters submitted to the Stockholders regarding the removal of the Advisor,
    Directors or any of their Affiliates or any transaction between the Company
    and any of them. In determining the requisite percentage in interest of
    Securities necessary to approve a matter on which the Advisor, Directors and
    any of their Affiliates may not vote or consent, any Securities owned by any
    of them shall not be included.


          32. Name. Cornerstone Ventures, Inc. has a proprietary interest in the
    name "Cornerstone." Cornerstone Ventures, Inc. is an Affiliate of the
    Advisor. Cornerstone Ventures, Inc. hereby grants to the Company a
    non-transferable, non-assignable, non-exclusive royalty-free right and
    license to use the name "Cornerstone " during the term of this Agreement.
    Accordingly, and in recognition of this right, if at any time the Company
    ceases to retain an Affiliate of Cornerstone Ventures, Inc. to perform the
    services of Advisor, the Company and the Operating Partnership will,
    promptly after receipt of written request from Cornerstone Ventures, Inc.,
    cease to conduct business under or use the name "Cornerstone" or any
    derivative thereof and the

                                      -22-



    Company and the Operating Partnership shall change the name of the Company
    and the Operating Partnership to a name that does not contain the name
    "Cornerstone" or any other word or words that might, in the reasonable
    discretion of the Advisor, be susceptible of indication of some form of
    relationship between the Company and the Advisor or any Affiliate thereof.
    At such time, the Company will also make any changes to any trademarks,
    service marks or other marks necessary to remove any references to the word
    "Cornerstone." Consistent with the foregoing, it is specifically recognized
    that the Advisor or one or more of its Affiliates has in the past and may in
    the future organize, sponsor or otherwise permit to exist other investment
    vehicles (including vehicles for investment in real estate) and financial
    and service organizations having "Cornerstone" as a part of their name, all
    without the need for any consent (and without the right to object thereto)
    by the Company, the Board or the Operating Partnership.

      IN WITNESS WHEREOF, the parties hereto have executed this Advisory
Agreement as of the date and year first above written.

                              CORNERSTONE CORE PROPERTIES REIT, INC.

                                  By: _________________________________________
                                         Terry G. Roussel, President

                              CORNERSTONE REALTY ADVISORS, LLC


                                  By: _________________________________________
                                         Terry G. Roussel, President


For purposes of Section 32 of this Agreement:

CORNERSTONE VENTURES, INC.

By: _______________________________
    Terry G. Roussel, President

                                      -23-

EX-10.2

                                                                    EXHIBIT 10.2


                          LIMITED PARTNERSHIP AGREEMENT
                                       OF
                     CORNERSTONE OPERATING PARTNERSHIP, L.P.



                                TABLE OF CONTENTS



                                                                                                                   Page
                                                                                                                   ----
                                                                                                                
ARTICLE 1  DEFINED TERMS.........................................................................................    1
ARTICLE 2  PARTNERSHIP FORMATION AND IDENTIFICATION..............................................................    6
   2.1      Formation............................................................................................    6
   2.2      Name, Office and Registered Agent....................................................................    6
   2.3      Partners.............................................................................................    6
   2.4      Term and Dissolution.................................................................................    6
   2.5      Filing of Certificate and Perfection of Limited Partnership..........................................    7
   2.6      Certificates Describing Partnership Units............................................................    7
ARTICLE 3  BUSINESS OF THE PARTNERSHIP...........................................................................    7
ARTICLE 4  CAPITAL CONTRIBUTIONS AND ACCOUNTS....................................................................    7
   4.1      Capital Contributions................................................................................    7
   4.2      Additional Capital Contributions and Issuances of Additional Partnership Interests...................    8
   4.3      Additional Funding...................................................................................    9
   4.4      Capital Accounts.....................................................................................    9
   4.5      Percentage Interests.................................................................................    9
   4.6      No Interest On Contributions.........................................................................   10
   4.7      Return Of Capital Contributions......................................................................   10
   4.8      No Third Party Beneficiary...........................................................................   10
ARTICLE 5  PROFITS AND LOSSES; DISTRIBUTIONS.....................................................................   10
   5.1      Allocation Of Profit And Loss........................................................................   10
   5.2      Distribution Of Cash.................................................................................   11
   5.3      Reit Distribution Requirements.......................................................................   12
   5.4      No Right To Distributions In Kind....................................................................   12
   5.5      Limitations On Return Of Capital Contributions.......................................................   12
   5.6      Distributions Upon Liquidation.......................................................................   12
   5.7      Substantial Economic Effect..........................................................................   13
ARTICLE 6  RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER.................................................   13
   6.1      Management Of The Partnership........................................................................   13
   6.2      Delegation Of Authority..............................................................................   15
   6.3      Indemnification And Exculpation Of Indemnitees.......................................................   15
   6.4      Liability Of The General Partner.....................................................................   16
   6.5      Reimbursement Of General Partner.....................................................................   17
   6.6      Outside Activities...................................................................................   17
   6.7      Employment Or Retention Of Affiliates................................................................   17
   6.8      General Partner Participation........................................................................   17
   6.9      Title To Partnership Assets..........................................................................   17
   6.10     Miscellaneous........................................................................................   18
ARTICLE 7  CHANGES IN GENERAL PARTNER............................................................................   18
   7.1      Transfer Of The General Partner's Partnership Interest...............................................   18
   7.2      Admission Of A Substitute Or Additional General Partner..............................................   19
   7.3      Effect Of Bankruptcy, Withdrawal, Death Or Dissolution Of A General Partner..........................   20
   7.4      Removal Of A General Partner.........................................................................   20
ARTICLE 8  RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS........................................................   21
   8.1      Management Of The Partnership........................................................................   21
   8.2      Power Of Attorney....................................................................................   21
   8.3      Limitation On Liability Of Limited Partners..........................................................   21
   8.4      Ownership By Limited Partner Of Corporate General Partner Or Affiliate...............................   21
   8.5      Exchange Right.......................................................................................   21
ARTICLE 9  TRANSFERS OF LIMITED PARTNERSHIP INTERESTS............................................................   22
   9.1      Purchase For Investment..............................................................................   22
   9.2      Restrictions On Transfer Of Limited Partnership Interests............................................   23
   9.3      Admission Of Substitute Limited Partner..............................................................   24


                                       (i)



                                                                                                                 
   9.4      Rights Of Assignees Of Partnership Interests.........................................................   24
   9.5      Effect Of Bankruptcy, Death, Incompetence Or Termination Of A Limited Partner........................   25
   9.6      Joint Ownership Of Interests.........................................................................   25
   9.7      Redemption Of Partnership Units......................................................................   25
ARTICLE 10  BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS...........................................................   25
   10.1     Books And Records....................................................................................   25
   10.2     Custody Of Partnership Funds; Bank Accounts..........................................................   25
   10.3     Fiscal And Taxable Year..............................................................................   26
   10.4     Annual Tax Information And Report....................................................................   26
   10.5     Tax Matters Partner; Tax Elections; Special Basis Adjustments........................................   26
   10.6     Reports To Limited Partners..........................................................................   26
ARTICLE 11  AMENDMENT OF AGREEMENT; MERGER.......................................................................   26
ARTICLE 12  GENERAL PROVISIONS...................................................................................   27
   12.1     Notices..............................................................................................   27
   12.2     Survival Of Rights...................................................................................   27
   12.3     Additional Documents.................................................................................   27
   12.4     Severability.........................................................................................   27
   12.5     Entire Agreement.....................................................................................   27
   12.6     Pronouns And Plurals.................................................................................   27
   12.7     Headings.............................................................................................   27
   12.8     Counterparts.........................................................................................   27
   12.9     Governing Law........................................................................................   28

EXHIBITS:

EXHIBIT A -       General Partner and Original Limited Partner, Capital Contributions and Percentage Interests...   29

EXHIBIT B -       Notice of Exercise of Exchange Right...........................................................   30

EXHIBIT C -       Indemnification Guideline......................................................................   31



                                      (ii)



                          LIMITED PARTNERSHIP AGREEMENT
                                       OF
                     CORNERSTONE OPERATING PARTNERSHIP, L.P.

      Cornerstone Operating Partnership, L.P. (the "Partnership"), was formed as
a limited partnership under the law of the State of Delaware, pursuant to a
Certificate of Limited Partnership filed with the Office of the Secretary of
State of the State of Delaware on November 30, 2004. This Agreement of Limited
Partnership ("Agreement") is entered into effective as of November 30, 2004
between Cornerstone Core Properties REIT, Inc., a Maryland corporation (the
"General Partner") and the Limited Partners set forth on Exhibit A hereto.
Capitalized terms used herein but not otherwise defined shall have the meanings
given them in Article 1.

      NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

                                    ARTICLE 1
                                  DEFINED TERMS

      The following defined terms used in this Agreement shall have the meanings
specified below:

      Act means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time.

      Additional Funds has the meaning set forth in Section 4.3.

      Additional Securities means any additional REIT Shares (other than REIT
Shares issued in connection with an exchange pursuant to Section 8.5 hereof or
REIT Shares issued pursuant to a dividend reinvestment plan of the General
Partner) or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares, as set forth in
Section 4.2(a)(ii).

      Administrative Expenses means (i) all administrative and operating costs
and expenses incurred by the Partnership, (ii) those administrative costs and
expenses of the General Partner, including any salaries or other payments to
directors, officers or employees of the General Partner, and any accounting and
legal expenses of the General Partner, which expenses, the Partners have agreed,
are expenses of the Partnership and not the General Partner, and (iii) to the
extent not included in clause (ii) above, REIT Expenses; provided, however, that
Administrative Expenses shall not include any administrative costs and expenses
incurred by the General Partner that are attributable to Properties or
partnership interests in a Subsidiary Partnership (other than this Partnership)
that are owned by the General Partner directly.

      Advisor or Advisors means the Person or Persons, if any, appointed,
employed or contracted with by the General Partner and responsible for directing
or performing the day-to-day business affairs of the General Partner, including
any Person to whom the Advisor subcontracts substantially all of such functions.

      Advisory Agreement means the agreement between the General Partner and the
Advisor pursuant to which the Advisor will direct or perform the day-to-day
business affairs of the General Partner.

      Affiliate or Affiliated means, as to any individual, corporation,
partnership, trust, limited liability company or other legal entity (other than
this Partnership), (i) any Person or entity directly or indirectly through one
or more intermediaries controlling, controlled by, or under common control with
another Person or entity; (ii) any Person or entity, directly or indirectly
owning, controlling, or holding with power to vote ten percent (10%) or more of
the outstanding voting securities of another Person or entity; (iii) any
officer, director, general partner or trustee of such Person or entity; (iv) any
Person ten percent (10%) or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held, with power to vote, by such
other Person; and (v) if such other Person or entity is an officer, director,
general partner, or trustee of a Person or entity, the Person or entity for
which such Person or entity acts in any such capacity.

                                      -1-



      Agreed Value means the fair market value of a Partner's non-cash Capital
Contribution as of the date of contribution as agreed to by such Partner and the
General Partner. The names and addresses of the General Partner and Original
Limited Partner, number of Partnership Units issued to each of them, and their
respective Capital Contributions as of the date of contribution is set forth on
Exhibit A.

      Agreement means this Agreement of Limited Partnership, as amended,
modified supplemented or restated from time to time, as the context requires.

      Articles of Incorporation means the Articles of Incorporation of the
General Partner filed with the Maryland State Department of Assessments and
Taxation, as amended or restated from time to time.

      Capital Account has the meaning provided in Section 4.4 hereof.

      Capital Contribution means the total amount of cash, cash equivalents, and
the Agreed Value of any Property or other asset (other than cash) contributed or
agreed to be contributed, as the context requires, to the Partnership by each
Partner pursuant to the terms of this Agreement. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution made by a
predecessor holder of the Partnership Interest of such Partner.

      Cash Amount means an amount of cash per Partnership Unit equal to the
Value of the REIT Shares Amount on the date of receipt by the General Partner of
a Notice of Exchange.

      Certificate means any instrument or document that is required under the
laws of the State of Delaware, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.2 hereof) and filed for recording in the
appropriate public offices within the State of Delaware or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal, or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the State of Delaware or such other
jurisdiction.

      Code means the Internal Revenue Code of 1986, as amended, and as hereafter
amended from time to time. Reference to any particular provision of the Code
shall mean that provision in the Code at the date hereof and any successor
provision of the Code.

      Conversion Factor means 1.0, provided that in the event that the General
Partner (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares other than the Special 10% Stock Dividend, (ii) subdivides its
outstanding REIT Shares, or (iii) combines its outstanding REIT Shares into a
smaller number of REIT Shares, the Conversion Factor shall be adjusted by
multiplying the Conversion Factor by a fraction, the numerator of which shall be
the number of REIT Shares issued and outstanding on the record date for such
dividend, distribution, subdivision or combination (assuming for such purposes
that such dividend, distribution, subdivision or combination has occurred as of
such time), and the denominator of which shall be the actual number of REIT
Shares (determined without the above assumption) issued and outstanding on such
date and, provided further, that in the event that an entity other than an
Affiliate of the General Partner shall become General Partner pursuant to any
merger, consolidation or combination of the General Partner with or into another
entity (the "Successor Entity"), the Conversion Factor shall be adjusted by
multiplying the Conversion Factor by the number of shares of the Successor
Entity into which one REIT Share is converted pursuant to such merger,
consolidation or combination, determined as of the date of such merger,
consolidation or combination. Any adjustment to the Conversion Factor shall
become effective immediately after the effective date of such event retroactive
to the record date, if any, for such event; provided, however, that if the
General Partner receives a Notice of Exchange after the record date, but prior
to the effective date of such dividend, distribution, subdivision or
combination, the Conversion Factor shall be determined as if the General Partner
had received the Notice of Exchange immediately prior to the record date for
such dividend, distribution, subdivision or combination.

      Event of Bankruptcy as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the

                                      -2-



appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.

      Exchange Amount means either the Cash Amount or the REIT Shares Amount, as
selected by the General Partner in its sole and absolute discretion pursuant to
Section 8.5(b) hereof.

      Exchange Right has the meaning provided in Section 8.5(a) hereof.

      Exchanging Partner has the meaning provided in Section 8.5(a) hereof.

      General Partner means Cornerstone Core Properties REIT, Inc., a Maryland
corporation, and any Person who becomes a substitute or additional General
Partner as provided herein, and any of their successors as General Partner.

      General Partnership Interest means a Partnership Interest held by the
General Partner that is a general partnership interest.

      Indemnitee means (i) the General Partner or a director, officer or
employee of the General Partner or Partnership, (ii) the Advisor or a director,
officer, employee of the Advisor or another agent of the Advisor if such agent
is an Affiliate of the Advisor and (iii) such other Persons (including
Affiliates of the General Partner, the Advisor or the Partnership) as the
General Partner may designate from time to time, in its sole and absolute
discretion.

      Independent Director means a director of the General Partner who is not an
officer or employee of the General Partner, any Affiliate of an officer or
employee or any Affiliate of (i) any lessee of any property of the General
Partner or any Subsidiary of the General Partner, (ii) any Subsidiary of the
General Partner, or (iii) any partnership that is an Affiliate of the General
Partner.

      Limited Partner means any Person named as a Limited Partner on Exhibit A
attached hereto, and any Person who becomes a Substitute Limited Partner, in
such Person's capacity as a Limited Partner in the Partnership.

      Limited Partnership Interest means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.

      Listing means the listing of the shares of the General Partner's stock,
previously issued by the General Partner pursuant to an effective registration
statement and such shares currently registered with the SEC pursuant to an
effective registration statement, on a national securities exchange or
over-the-counter market.

      Loss has the meaning provided in Section 5.1(h) hereof.

      Notice of Exchange means the Notice of Exercise of Exchange Right
substantially in the form attached as Exhibit B hereto.

      NYSE means the New York Stock Exchange.

      Offer has the meaning set forth in Section 7.1(c) hereof.

      Offering means the initial offer and sale by the General Partner and the
purchase by the Dealer Manager (as defined in the Prospectus) of REIT Shares for
sale to the public.

      OP Unitholders means all holders of Partnership Interests.

                                      -3-



      Original Limited Partner means the Limited Partners designated as
"Original Limited Partners" on Exhibit A hereto.

      Partner means any General Partner or Limited Partner.

      Partner Nonrecourse Debt Minimum Gain has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).

      Partnership means Cornerstone Operating Partnership, L.P., a Delaware
limited partnership.

      Partnership Interest means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.

      Partnership Minimum Gain has the meaning set forth in Regulations Section
1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of
Partnership Minimum Gain is determined by first computing, for each Partnership
nonrecourse liability, any gain the Partnership would realize if it disposed of
the property subject to that liability for no consideration other than full
satisfaction of the liability, and then aggregating the separately computed
gains. A Partner's share of Partnership Minimum Gain shall be determined in
accordance with Regulations Section 1.704-2(g)(1).

      Partnership Record Date means the record date established by the General
Partner for the distribution of cash pursuant to Section 5.2 hereof, which
record date shall be the same as the record date established by the General
Partner for a distribution to its shareholders of some or all of its portion of
such distribution.

      Partnership Unit means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder. The allocation of Partnership Units
among the Partners shall be as set forth on Exhibit A, as such Exhibit may be
amended from time to time.

      Percentage Interest means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner by the total number of Partnership Units then outstanding.
The Percentage Interest of each Partner shall be as set forth on Exhibit A, as
such Exhibit may be amended from time to time.

      Person means any individual, partnership, limited liability company,
corporation, joint venture, trust or other entity.

      Profit has the meaning provided in Section 5.1(h) hereof.

      Property means any office or industrial property or other investment in
which the Partnership holds an ownership interest.

      Prospectus means the final prospectus delivered to purchasers of REIT
Shares in the Offering.

      Regulations means the Federal income tax regulations promulgated under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.

      Regulatory Allocations has the meaning set forth in Section 5.1(i) hereof.

      REIT means a real estate investment trust under Sections 856 through 860
of the Code.

      REIT Expenses means (i) costs and expenses relating to the formation and
continuity of existence and operation of the General Partner and any
Subsidiaries thereof (which Subsidiaries shall, for purposes hereof, be included

                                      -4-



within the definition of General Partner), including taxes, fees and assessments
associated therewith, any and all costs, expenses or fees payable to any
director, officer, or employee of the General Partner, (ii) costs and expenses
relating to any public offering and registration of securities by the General
Partner and all statements, reports, fees and expenses incidental thereto,
including, without limitation, underwriting discounts and selling commissions
applicable to any such offering of securities, and any costs and expenses
associated with any claims made by any holders of such securities or any
underwriters or placement agents thereof, (iii) costs and expenses associated
with any repurchase of any securities by the General Partner, (iv) costs and
expenses associated with the preparation and filing of any periodic or other
reports and communications by the General Partner under federal, state or local
laws or regulations, including filings with the SEC, (v) costs and expenses
associated with compliance by the General Partner with laws, rules and
regulations promulgated by any regulatory body, including the SEC and any
securities exchange, (vi) costs and expenses associated with any 401(k) plan,
incentive plan, bonus plan or other plan providing for compensation for the
employees of the General Partner, (vii) costs and expenses incurred by the
General Partner relating to any issuing or redemption of Partnership Interests,
and (viii) all other operating or administrative costs of the General Partner
incurred in the ordinary course of its business on behalf of or in connection
with the Partnership.

      REIT Share means a common share of beneficial interest in the General
Partner (or successor entity, as the case may be).

      REIT Shares Amount means a number of REIT Shares equal to the product of
the number of Partnership Units offered for exchange by an Exchanging Partner,
multiplied by the Conversion Factor as adjusted to and including the Specified
Exchange Date; provided that in the event the General Partner issues to all
holders of REIT Shares rights, options, warrants or convertible or exchangeable
securities entitling the shareholders to subscribe for or purchase REIT Shares,
or any other securities or property (collectively, the "rights"), and the rights
have not expired at the Specified Exchange Date, then the REIT Shares Amount
shall also include the rights issuable to a holder of the REIT Shares Amount of
REIT Shares on the record date fixed for purposes of determining the holders of
REIT Shares entitled to rights.

      SEC means the U.S. Securities and Exchange Commission.

      Securities Act means the Securities Act of 1933, as amended.

      Service means the United States Internal Revenue Service.


      Special 10% Stock Dividend means the 10% stock dividend declared by the
General Partner to be paid to the stockholders of record of the General Partner
on the date that the General Partner raises the first $125,000,000 in its
initial public offering.


      Specified Exchange Date means the first business day of the month that is
at least 60 business days after the receipt by the General Partner of the Notice
of Exchange.

      Subsidiary means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.

      Subsidiary Partnership means any partnership of which the partnership
interests therein are owned by the General Partner or a direct or indirect
subsidiary of the General Partner.

      Substitute Limited Partner means any Person admitted to the Partnership as
a Limited Partner pursuant to Section 9.3 hereof.

      Successor Entity has the meaning provided in the definition of "Conversion
Factor" contained herein.

      Surviving General Partner has the meaning set forth in Section 7.1(d)
hereof.

      Transaction has the meaning set forth in Section 7.1(c) hereof.

                                      -5-



      Transfer has the meaning set forth in Section 9.2(a) hereof.

      Value means, with respect to any security, the average of the daily market
price of such security for the ten consecutive trading days immediately
preceding the date of such valuation. The market price for each such trading day
shall be: (i) if the security is listed or admitted to trading on any securities
exchange or the NYSE, the sale price, regular way, on such day, or if no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, on such day, (ii) if the security is not listed or admitted to
trading on any securities exchange or the NYSE, the last reported sale price on
such day or, if no sale takes place on such day, the average of the closing bid
and asked prices on such day, as reported by a reliable quotation source
designated by the General Partner, or (iii) if the security is not listed or
admitted to trading on any securities exchange or the NYSE and no such last
reported sale price or closing bid and asked prices are available, the average
of the reported high bid and low asked prices on such day, as reported by a
reliable quotation source designated by the General Partner, or if there shall
be no bid and asked prices on such day, the average of the high bid and low
asked prices, as so reported, on the most recent day (not more than ten days
prior to the date in question) for which prices have been so reported; provided
that if there are no bid and asked prices reported during the ten days prior to
the date in question, the value of the security shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the security includes any additional rights, then the value of such rights
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate.

                                    ARTICLE 2
                    PARTNERSHIP FORMATION AND IDENTIFICATION

      2.1 Formation. The Partnership was formed as a limited partnership
pursuant to the Act for the purposes and upon the terms and conditions set forth
in this Agreement.

      2.2 Name, Office and Registered Agent. The name of the Partnership is
Cornerstone Operating Partnership, L.P.. The specified office and place of
business of the Partnership shall be 4590 McArthur Blvd., Suite 610, Newport
Beach, California 92660. The General Partner may at any time change the location
of such office, provided the General Partner gives notice to the Partners of any
such change. The name and address of the Partnership's registered agent is
Corporate Research Services, Inc., 32 Lockerman Square, Suite 109, Dover,
Delaware 19904. The sole duty of the registered agent as such is to forward to
the Partnership any notice that is served on him as registered agent.

      2.3 Partners.

            (a) The General Partner of the Partnership is Cornerstone Real
Estate Fund, Inc., a Maryland corporation. Its principal place of business is
the same as that of the Partnership.

            (b) The Limited Partners are those Persons identified as Limited
Partners on Exhibit A hereto, as amended from time to time.

      2.4 Term and Dissolution.

            (a) The Partnership shall have perpetual duration, except that the
Partnership shall be dissolved upon the first to occur of any of the following
events:

                  (i) The occurrence of an Event of Bankruptcy as to a General
Partner or the dissolution, death, removal or withdrawal of a General Partner
unless the business of the Partnership is continued pursuant to Section 7.3(b)
hereof; provided that if a General Partner is on the date of such occurrence a
partnership, the dissolution of such General Partner as a result of the
dissolution, death, withdrawal, removal or Event of Bankruptcy of a partner in
such partnership shall not be an event of dissolution of the Partnership if the
business of such General Partner is continued by the remaining partner or
partners, either alone or with additional partners, and such General Partner and
such partners comply with any other applicable requirements of this Agreement;

                                      -6-



                  (ii) The passage of 90 days after the sale or other
disposition of all or substantially all of the assets of the Partnership
(provided that if the Partnership receives an installment obligation as
consideration for such sale or other disposition, the Partnership shall
continue, unless sooner dissolved under the provisions of this Agreement, until
such time as such note or notes are paid in full);

                  (iii) The exchange of all Limited Partnership Interests (other
than any of such interests held by the General Partner or Affiliates of the
General Partner) for REIT Shares or the securities of any other entity; or

                  (iv) The election by the General Partner that the Partnership
should be dissolved.

            (b) Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to Section 7.3(b) hereof), the General Partner
(or its trustee, receiver, successor or legal representative) shall amend or
cancel the Certificate and liquidate the Partnership's assets and apply and
distribute the proceeds thereof in accordance with Section 5.6 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.

      2.5 Filing of Certificate and Perfection of Limited Partnership. The
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, The Certificate any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.

      2.6 Certificates Describing Partnership Units. At the request of a Limited
Partner, the General Partner, at its option, may issue a certificate summarizing
the terms of such Limited Partner's interest in the Partnership, including the
number of Partnership Units owned and the Percentage Interest represented by
such Partnership Units as of the date of such certificate. Any such certificate
(i) shall be in form and substance as approved by the General Partner, (ii)
shall not be negotiable and (iii) shall bear a legend to the following effect:

      This certificate is not negotiable. The Partnership Units represented by
this certificate are governed by and transferable only in accordance with the
provisions of the Agreement of Limited Partnership of Cornerstone Operating
Partnership, L.P., as amended from time to time.

                                    ARTICLE 3
                           BUSINESS OF THE PARTNERSHIP

      The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, provided, however, that such business
shall be limited to and conducted in such a manner as to permit the General
Partner at all times to qualify as a REIT, unless the General Partner otherwise
ceases to qualify as a REIT, (ii) to enter into any partnership, joint venture
or other similar arrangement to engage in any of the foregoing or the ownership
of interests in any entity engaged in any of the foregoing and (iii) to do
anything necessary or incidental to the foregoing. In connection with the
foregoing, and without limiting the General Partner's right in its sole and
absolute discretion to cease qualifying as a REIT, the Partners acknowledge that
the General Partner's current status as a REIT and the avoidance of income and
excise taxes on the General Partner inures to the benefit of all the Partners
and not solely to the General Partner. Notwithstanding the foregoing, the
Limited Partners agree that the General Partner may terminate its status as a
REIT under the Code at any time to the full extent permitted under the Articles
of Incorporation. The General Partner shall also be empowered to do any and all
acts and things necessary or prudent to ensure that the Partnership will not be
classified as a "publicly traded partnership" for purposes of Section 7704 of
the Code.

                                    ARTICLE 4
                       CAPITAL CONTRIBUTIONS AND ACCOUNTS

      4.1 Capital Contributions. The General Partner and the Limited Partners
have made capital contributions to the Partnership in exchange for the
Partnership Interests set forth opposite their names on Exhibit A, as amended
from time to time.

                                      -7-



      4.2 Additional Capital Contributions and Issuances of Additional
Partnership Interests. Except as provided in this Section 4.2 or in Section 4.3,
the Partners shall have no right or obligation to make any additional Capital
Contributions or loans to the Partnership. The General Partner may contribute
additional capital to the Partnership, from time to time, and receive additional
Partnership Interests in respect thereof, in the manner contemplated in this
Section 4.2.

            (a) Issuances of Additional Partnership Interests.

                  (i) General. The General Partner is hereby authorized to cause
the Partnership to issue such additional Partnership Interests in the form of
Partnership Units for any Partnership purpose at any time or from time to time,
to the Partners (including the General Partner) or to other Persons for such
consideration and on such terms and conditions as shall be established by the
General Partner in its sole and absolute discretion, all without the approval of
any Limited Partners. Any additional Partnership Interests issued thereby may be
issued in one or more classes, or one or more series of any of such classes,
with such designations, preferences and relative, participating, optional or
other special rights, powers and duties, including rights, powers and duties
senior to Limited Partnership Interests, all as shall be determined by the
General Partner in its sole and absolute discretion and without the approval of
any Limited Partner, subject to Delaware law, including, without limitation, (i)
the allocations of items of Partnership income, gain, loss, deduction and credit
to each such class or series of Partnership Interests; (ii) the right of each
such class or series of Partnership Interests to share in Partnership
distributions; and (iii) the rights of each such class or series of Partnership
Interests upon dissolution and liquidation of the Partnership; provided,
however, that no additional Partnership Interests shall be issued to the General
Partner unless:

                        (1) (A) the additional Partnership Interests are issued
in connection with an issuance of REIT Shares of or other interests in the
General Partner, which shares or interests have designations, preferences and
other rights, all such that the economic interests are substantially similar to
the designations, preferences and other rights of the additional Partnership
Interests issued to the General Partner by the Partnership in accordance with
this Section 4.2 and (B) the General Partner shall make a Capital Contribution
to the Partnership in an amount equal to the proceeds raised in connection with
the issuance of such shares of stock of or other interests in the General
Partner;

                        (2) the additional Partnership Interests are issued in
exchange for property owned by the General Partner with a fair market value, as
determined by the General Partner, in good faith, equal to the value of the
Partnership Interests; or

                        (3) the additional Partnership Interests are issued to
all Partners holding Partnership Units in proportion to their respective
Percentage Interests.

      In addition, the General Partner may acquire Partnership Interests from
other Partners pursuant to this Agreement. In the event that the Partnership
issues Partnership Interests pursuant to this Section 4.2(a), the General
Partner shall make such revisions to this Agreement (without any requirement of
receiving approval of the Limited Partners) as it deems necessary to reflect the
issuance of such additional Partnership Interests and any special rights,
powers, and duties associated therewith.

      Without limiting the foregoing, the General Partner is expressly
authorized to cause the Partnership to issue Partnership Units for less than
fair market value, so long as the General Partner concludes in good faith that
such issuance is in the best interests of the General Partner and the
Partnership.

                  (ii) Upon Issuance of Additional Securities. The General
Partner shall not issue any additional REIT Stock (other then REIT Stock issued
in connection with an exchange pursuant to Section 8.5 hereof) or rights,
options, warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase REIT Stock (collectively, "Additional Securities"
other than to all holders of REIT Stock, unless (A) the General Partner shall
cause the Partnership to issue to the General Partner, as the General Partner
may designate, Partnership Interests or rights, options, warrants or convertible
or exchangeable securities of the Partnership having designations, preferences
and other rights, all such that the economic interests are substantially similar
to those of the Additional Securities, and (B) the General Partner contributes
the net proceeds from the issuance of such Additional Securities and from any
exercise of rights contained in such Additional Securities, directly and through
the General Partner, to the Partnership;

                                      -8-



provided, however, that the General Partner is allowed to issue Additional
Securities in connection with an acquisition of a property to be held directly
by the General Partner, but if and only if, such direct acquisition and issuance
of Additional Securities have been approved and determined to be in the best
interests of the General Partner and the Partnership by a majority of the
Independent Directors (as defined in the General Partner's Articles of
Incorporation). Without limiting the foregoing, the General Partner is expressly
authorized to issue Additional Securities for less than fair market value, and
to cause the Partnership to issue to the General Partner corresponding
Partnership Interests, so long as (x) the General Partner concludes in good
faith that such issuance is in the best interests of the General Partner and the
Partnership, including without limitation, the issuance of REIT Shares and
corresponding Partnership Units pursuant to an employee share purchase plan
providing for employee purchases of REIT Shares at a discount from fair market
value or employee stock options that have an exercise price that is less than
the fair market value of the REIT Shares, either at the time of issuance or at
the time of exercise, and (y) the General Partner contributes all proceeds from
such issuance to the Partnership. For example, in the event the General Partner
issues REIT Shares for a cash purchase price and contributes all of the proceeds
of such issuance to the Partnership as required hereunder, the General Partner
shall be issued a number of additional Partnership Units equal to the product of
(A) the number of such REIT Shares issued by the General Partner, the proceeds
of which were so contributed, multiplied by (B) a fraction, the numerator of
which is 100%, and the denominator of which is the Conversion Factor in effect
on the date of such contribution.

            (b) Certain Deemed Contributions of Proceeds of Issuance of REIT
Shares. In connection with any and all issuances of REIT Shares, the General
Partner shall make Capital Contributions to the Partnership of the proceeds
therefrom, provided that if the proceeds actually received and contributed by
the General Partner are less than the gross proceeds of such issuance as a
result of any underwriter's discount or other expenses paid or incurred in
connection with such issuance, then the General Partner shall be deemed to have
made Capital Contributions to the Partnership in the aggregate amount of the
gross proceeds of such issuance and the Partnership shall be deemed
simultaneously to have paid such offering expenses in accordance with Section
6.5 hereof and in connection with the required issuance of additional
Partnership Units to the General Partner for such Capital Contributions pursuant
to Section 4.2(a) hereof.

      4.3 Additional Funding. If the General Partner determines that it is in
the best interests of the Partnership to provide for additional Partnership
funds ("Additional Funds") for any Partnership purpose, the General Partner may
(i) cause the Partnership to obtain such funds from outside borrowings, or (ii)
elect to have the General Partner or any of its Affiliates provide such
Additional Funds to the Partnership through loans or otherwise.

      4.4 Capital Accounts. A separate capital account (a "Capital Account")
shall be established and maintained for each Partner in accordance with
Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner acquires
an additional Partnership Interest in exchange for more than a de minimis
Capital Contribution, (ii) the Partnership distributes to a Partner more than a
de minimis amount of Partnership property as consideration for a Partnership
Interest, or (iii) the Partnership is liquidated within the meaning of
Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue the
property of the Partnership to its fair market value (as determined by the
General Partner, in its sole and absolute discretion, and taking into account
Section 7701(g) of the Code) in accordance with Regulations Section
1.704-1(b)(2)(iv)(f). When the Partnership's property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance
with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Partners
pursuant to Section 5.1 if there were a taxable disposition of such property for
its fair market value (as determined by the General Partner, in its sole and
absolute discretion, and taking into account Section 7701(g) of the Code) on the
date of the revaluation.

      4.5 Percentage Interests. If the number of outstanding Partnership Units
increases or decreases during a taxable year, each Partner's Percentage Interest
shall be adjusted by the General Partner effective as of the effective date of
each such increase or decrease to a percentage equal to the number of
Partnership Units held by such Partner divided by the aggregate number of
Partnership Units outstanding after giving effect to such increase or decrease.
If the Partners' Percentage Interests are adjusted pursuant to this Section 4.5,
the Profits and Losses for the taxable year in which the adjustment occurs shall
be allocated between the part of the year ending on the day when the
Partnership's property is revalued by the General Partner and the part of the
year beginning on the following day either (i) as if the taxable year had ended
on the date of the adjustment or (ii) based on the number of days in each part.
The General Partner, in its sole and absolute discretion, shall determine which
method shall be used to allocate Profits and Losses for

                                      -9-



the taxable year in which the adjustment occurs. The allocation of Profits and
Losses for the earlier part of the year shall be based on the Percentage
Interests before adjustment, and the allocation of Profits and Losses for the
later part shall be based on the adjusted Percentage Interests.

      4.6 No Interest on Contributions. No Partner shall be entitled to interest
on its Capital Contribution.

      4.7 Return of Capital Contributions. No Partner shall be entitled to
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.

      4.8 No Third Party Beneficiary. No creditor or other third party having
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners herein
set forth to make Capital Contributions or loans to the Partnership shall be
deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital Account of a Partner
shall not be deemed to be a liability of such Partner nor an asset or property
of the Partnership.

                                    ARTICLE 5
                        PROFITS AND LOSSES; DISTRIBUTIONS

      5.1 Allocation of Profit And Loss.

            (a) General. Profit and Loss of the Partnership for each fiscal year
or other applicable period of the Partnership shall be allocated among the
Partners in accordance with their respective Percentage Interests.

            (b) Minimum Gain Chargeback. Notwithstanding any provision to the
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in
accordance with the Partners' respective Percentage Interests, (ii) any expense
of the Partnership that is a "partner nonrecourse deduction" within the meaning
of Regulations Section 1.704-2(i)(2) shall be allocated to the Partner that
bears the "economic risk of loss" of such deductions in accordance with
Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1)
for any Partnership taxable year, then, subject to the exceptions set forth in
Regulations Section 1.704-2(f)(2),(3), (4) and (5), items of gain and income
shall be allocated among the Partners in accordance with Regulations Section
1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j),
and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership
taxable year, then, subject to the exceptions set forth in Regulations Section
1.704-(2)(g), items of gain and income shall be allocated among the Partners in
accordance with Regulations Section 1.704-2(i)(4) and the ordering rules
contained in Regulations Section 1.704-2(j). A Partner's "interest in
partnership profits" for purposes of determining its share of the nonrecourse
liabilities of the Partnership within the meaning of Regulations Section
1.752-3(a)(3) shall be such Partner's Percentage Interest.

            (c) Qualified Income Offset. If a Partner unexpectedly receives in
any taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that
causes or increases a deficit balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially
for such taxable year (and, if necessary, later taxable years) items of income
and gain in an amount and manner sufficient to

                                      -10-



eliminate such deficit Capital Account balance as quickly as possible as
provided in Regulations Section 1.704-1(b)(2)(ii)(d). This Section 5.1(e) is
intended to constitute a "qualified income offset" under Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith. After the occurrence of an allocation of income or gain to a Partner
in accordance with this Section 5.1(e), to the extent permitted by Regulations
Section 1.704-1(b), items of expense or loss shall be allocated to such Partner
in an amount necessary to offset the income or gain previously allocated to such
Partner under this Section 5.1(e).

            (d) Capital Account Deficits. Loss shall not be allocated to a
Limited Partner to the extent that such allocation would cause or increase a
deficit in such Partner's Capital Account at the end of any fiscal year (after
reduction to reflect the items described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Partner's shares
of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, as
determined in accordance with Regulations Sections 1.704-2(g) and 1.704-2(i).
Any Loss in excess of that limitation shall be allocated to the General Partner.
After the occurrence of an allocation of Loss to the General Partner in
accordance with this Section 5.1(d), to the extent permitted by Regulations
Section 1.704-1(b), Profit shall be allocated to such Partner in an amount
necessary to offset the Loss previously allocated to each Partner under this
Section 5.1(d).

            (e) Allocations Between Transferor and Transferee. If a Partner
transfers any part or all of its Partnership Interest, the distributive shares
of the various items of Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the
transferee Partner either (i) as if the Partnership's fiscal year had ended on
the date of the transfer, or (ii) based on the number of days of such fiscal
year that each was a Partner without regard to the results of Partnership
activities in the respective portions of such fiscal year in which the
transferor and the transferee were Partners. The General Partner, in its sole
and absolute discretion, shall determine which method shall be used to allocate
the distributive shares of the various items of Profit and Loss between the
transferor and the transferee Partner.

            (f) Definition of Profit and Loss. "Profit" and "Loss" and any items
of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss
shall not include items of income, gain and expense that are specially allocated
pursuant to Sections 5.1(b), 5.1(c) or 5.1(d). All allocations of income,
Profit, gain, Loss and expense (and all items contained therein) for federal
income tax purposes shall be identical to all allocations of such items set
forth in this Section 5.1, except as otherwise required by Section 704(c) of the
Code and Regulations Section 1.704-1(b)(4). The General Partner shall have the
authority to elect the method to be used by the Partnership for allocating items
of income, gain, and expense as required by Section 704(c) of the Code including
a method that may result in a Partner receiving a disproportionately larger
share of the Partnership tax depreciation deductions, and such election shall be
binding on all Partners.

            (g) Curative Allocations. The allocations set forth in Section
5.1(c), (d) and (e) of this Agreement (the "Regulatory Allocations") are
intended to comply with certain requirements of the Regulations. The General
Partner is authorized to offset all Regulatory Allocations either with other
Regulatory Allocations or with special allocations of other items of Partnership
income, gain, loss or deduction pursuant to this Section 5.1(g). Therefore,
notwithstanding any other provision of this Section 5.1 (other than the
Regulatory Allocations), the General Partner shall make such offsetting special
allocations of Partnership income, gain, loss or deduction in whatever manner it
deems appropriate so that, after such offsetting allocations are made, each
Partner's Capital Account is, to the extent possible, equal to the Capital
Account balance such Partner would have had if the Regulatory Allocations were
not part of this Agreement and all Partnership items were allocated pursuant to
Section 5.1(a) and (e).

      5.2 Distribution of Cash.

            (a) The Partnership shall distribute cash on a quarterly (or, at the
election of the General Partner, more frequent) basis, in an amount determined
by the General Partner in its sole and absolute discretion, to the Partners who
are Partners on the Partnership Record Date with respect to such quarter (or
other distribution period) in accordance with their respective Percentage
Interests on the Partnership Record Date; provided, however, that if a new or
existing Partner acquires an additional Partnership Interest in exchange for a
Capital Contribution on any date other than the next day after a Partnership
Record Date, the cash distribution attributable to such additional Partnership
Interest relating to the Partnership Record Date next following the issuance of
such additional Partnership Interest (or relating to the Partnership Record Date
if such Partnership Interest was acquired on the Partnership Record Date) shall

                                      -11-



be reduced in the proportion to (i) the number of days that such additional
Partnership Interest is held by such Partner bears to (ii) the number of days
between such Partnership Record Date (including such Partnership Record Date)
and the immediately preceding Partnership Record Date.

            (b) Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that it determines to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Partnership is required to withhold and pay
over to any taxing authority any amount resulting from the allocation or
distribution of income to any Partner or assignee (including by reason of
Section 1446 of the Code), either (i) if the actual amount to be distributed to
the Partner equals or exceeds the amount required to be withheld by the
Partnership, the amount withheld shall be treated as a distribution of cash in
the amount of such withholding to such Partner, or (ii) if the actual amount to
be distributed to the Partner is less than the amount required to be withheld by
the Partnership, the amount required to be withheld shall be treated as a loan
(a "Partnership Loan") from the Partnership to the Partner on the day the
Partnership pays over such amount to a taxing authority. A Partnership Loan
shall be repaid through withholding by the Partnership with respect to
subsequent distributions to the applicable Partner or assignee. In the event
that a Limited Partner (a "Defaulting Limited Partner") fails to pay any amount
owed to the Partnership with respect to the Partnership Loan within 15 days
after demand for payment thereof is made by the Partnership on the Limited
Partner, the General Partner, in its sole and absolute discretion, may elect to
make the payment to the Partnership on behalf of such Defaulting Limited
Partner. In such event, on the date of payment, the General Partner shall be
deemed to have extended a loan (a "General Partner Loan") to the Defaulting
Limited Partner in the amount of the payment made by the General Partner and
shall succeed to all rights and remedies of the Partnership against the
Defaulting Limited Partner as to that amount. Without limitation, the General
Partner shall have the right to receive any distributions that otherwise would
be made by the Partnership to the Defaulting Limited Partner until such time as
the General Partner Loan has been paid in full, and any such distributions so
received by the General Partner shall be treated as having been received by the
Defaulting Limited Partner and immediately paid to the General Partner.

      Any amounts treated as a Partnership Loan or a General Partner Loan
pursuant to this Section 5.2(c) shall bear interest at the lesser of (i) the
base rate on corporate loans at large United States money center commercial
banks, as published from time to time in The Wall Street Journal, or (ii) the
maximum lawful rate of interest on such obligation, such interest to accrue from
the date the Partnership or the General Partner, as applicable, is deemed to
extend the loan until such loan is repaid in full.

            (c) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a cash
distribution as the holder of record of a REIT Share for which all or part of
such Partnership Unit has been or will be exchanged.

      5.3 REIT Distribution Requirements. The General Partner shall use its
commercially reasonable efforts to cause the Partnership to distribute amounts
sufficient to enable the General Partner to pay shareholder dividends that will
allow the General Partner to (i) meet its distribution requirement for
qualification as a REIT as set forth in Section 857 of the Code and (ii) avoid
any federal income or excise tax liability imposed by the Code.

      5.4 No Right to Distributions In Kind. No Partner shall be entitled to
demand property other than cash in connection with any distributions by the
Partnership.

      5.5 Limitations on Return of Capital Contributions. Notwithstanding any of
the provisions of this Article 5, no Partner shall have the right to receive and
the General Partner shall not have the right to make, a distribution that
includes a return of all or part of a Partner's Capital Contributions, unless
after giving effect to the return of a Capital Contribution, the sum of all
Partnership liabilities, other than the liabilities to a Partner for the return
of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.

      5.6 Distributions Upon Liquidation. Upon liquidation of the Partnership,
after payment of, or adequate provision for, debts and obligations of the
Partnership, including any Partner loans, any remaining assets of the
Partnership shall be distributed to all Partners with positive Capital Accounts
in accordance with their respective positive Capital Account balances. For
purposes of the preceding sentence, the Capital Account of each Partner shall be
determined after all adjustments have been made in accordance with Sections 4.4,
5.1 and 5.2 resulting from Partnership

                                      -12-



operations and from all sales and dispositions of all or any part of the
Partnership's assets.. To the extent deemed advisable by the General Partner,
appropriate arrangements (including the use of a liquidating trust) may be made
to assure that adequate funds are available to pay any contingent debts or
obligations.

      5.7 Substantial Economic Effect. It is the intent of the Partners that the
allocations of Profit and Loss under this Agreement have substantial economic
effect (or be consistent with the Partners' interests in the Partnership in the
case of the allocation of losses attributable to nonrecourse debt) within the
meaning of Section 704(b) of the Code as interpreted by the Regulations
promulgated pursuant thereto. Article 5 and other relevant provisions of this
Agreement shall be interpreted in a manner consistent with such intent.

                                    ARTICLE 6
                             RIGHTS, OBLIGATIONS AND
                          POWERS OF THE GENERAL PARTNER

      6.1 Management of the Partnership.

            (a) Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage and
control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:

                  (i) to acquire, purchase, own, operate, lease and dispose of
any real property and any other property or assets including, but not limited to
notes and mortgages, that the General Partner determines are necessary or
appropriate or in the best interests of the business of the Partnership;

                  (ii) to construct buildings and make other improvements on the
properties owned or leased by the Partnership;

                  (iii) to authorize, issue, sell, redeem or otherwise purchase
any Partnership Interests or any securities (including secured and unsecured
debt obligations of the Partnership, debt obligations of the Partnership
convertible into any class or series of Partnership Interests, or options,
rights, warrants or appreciation rights relating to any Partnership Interests)
of the Partnership;

                  (iv) to borrow or lend money for the Partnership, issue or
receive evidences of indebtedness in connection therewith, refinance, increase
the amount of, modify, amend or change the terms of, or extend the time for the
payment of, any such indebtedness, and secure such indebtedness by mortgage,
deed of trust, pledge or other lien on the Partnership's assets;

                  (v) to pay, either directly or by reimbursement, for all
operating costs and general administrative expenses of the Partnership to third
parties or to the General Partner or its Affiliates as set forth in this
Agreement;

                  (vi) to guarantee or become a co-maker of indebtedness of the
General Partner or any Subsidiary thereof, refinance, increase the amount of,
modify, amend or change the terms of, or extend the time for the payment of, any
such guarantee or indebtedness, and secure such guarantee or indebtedness by
mortgage, deed of trust, pledge or other lien on the Partnership's assets;

                  (vii) to use assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with this Agreement,
including, without limitation, payment, either directly or by reimbursement, of
all operating costs and general administrative expenses of the General Partner,
the Partnership or any Subsidiary of either, to third parties or to the General
Partner as set forth in this Agreement;

                  (viii) to lease all or any portion of any of the Partnership's
assets, whether or not the terms of such leases extend beyond the termination
date of the Partnership and whether or not any portion of the Partnership's

                                      -13-



assets so leased are to be occupied by the lessee, or, in turn, subleased in
whole or in part to others, for such consideration and on such terms as the
General Partner may determine;

                  (ix) to prosecute, defend, arbitrate, or compromise any and
all claims or liabilities in favor of or against the Partnership, on such terms
and in such manner as the General Partner may reasonably determine, and
similarly to prosecute, settle or defend litigation with respect to the
Partners, the Partnership, or the Partnership's assets;

                  (x) to file applications, communicate, and otherwise deal with
any and all governmental agencies having jurisdiction over, or in any way
affecting, the Partnership's assets or any other aspect of the Partnership
business;

                  (xi) to make or revoke any election permitted or required of
the Partnership by any taxing authority;

                  (xii) to maintain such insurance coverage for public
liability, fire and casualty, and any and all other insurance for the protection
of the Partnership, for the conservation of Partnership assets, or for any other
purpose convenient or beneficial to the Partnership, in such amounts and such
types, as it shall determine from time to time;

                  (xiii) to determine whether or not to apply any insurance
proceeds for any property to the restoration of such property or to distribute
the same;

                  (xiv) to establish one or more divisions of the Partnership,
to hire and dismiss employees of the Partnership or any division of the
Partnership, and to retain legal counsel, accountants, consultants, real estate
brokers, and such other persons, as the General Partner may deem necessary or
appropriate in connection with the Partnership business and to pay therefor such
reasonable remuneration as the General Partner may deem reasonable and proper;

                  (xv) to retain other services of any kind or nature in
connection with the Partnership business, and to pay therefor such remuneration
as the General Partner may deem reasonable and proper;

                  (xvi) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority conferred
upon the General Partner;

                  (xvii) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of the
Partnership;

                  (xviii) to distribute Partnership cash or other Partnership
assets in accordance with this Agreement;

                  (xix) to form or acquire an interest in, and contribute
property to, any further limited or general partnerships, joint ventures or
other relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity interest from time
to time);

                  (xx) to establish Partnership reserves for working capital,
capital expenditures, contingent liabilities, or any other valid Partnership
purpose;

                  (xxi) to merge, consolidate or combine the Partnership with or
into another Person;

                  (xxii) to do any and all acts and things necessary or prudent
to ensure that the Partnership will not be classified as a "publicly traded
partnership" for purposes of Section 7704 of the Code; and

                  (xxiii) to take such other action, execute, acknowledge, swear
to or deliver such other documents and instruments, and perform any and all
other acts that the General Partner deems necessary or appropriate

                                      -14-



for the formation, continuation and conduct of the business and affairs of the
Partnership (including, without limitation, all actions consistent with allowing
the General Partner at all times to qualify as a REIT unless the General Partner
voluntarily terminates its REIT status) and to possess and enjoy all of the
rights and powers of a general partner as provided by the Act.

            (b) Except as otherwise provided herein, to the extent the duties of
the General Partner require expenditures of funds to be paid to third parties,
the General Partner shall not have any obligations hereunder except to the
extent that partnership funds are reasonably available to it for the performance
of such duties, and nothing herein contained shall be deemed to authorize or
require the General Partner, in its capacity as such, to expend its individual
funds for payment to third parties or to undertake any individual liability or
obligation on behalf of the Partnership.

      6.2 Delegation of Authority. The General Partner may delegate any or all
of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.

      6.3 Indemnification and Exculpation of Indemnitees.

            (a) The Partnership shall indemnify an Indemnitee from and against
any and all losses, claims, damages, liabilities, joint or several, expenses
(including reasonable legal fees and expenses), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise.

      Notwithstanding the foregoing, the Partnership shall not provide for
indemnification for an Indemnitee for any liability or loss suffered by any of
them, unless all of the following conditions are met:

          (i) The Indemnitee determined, in good faith, that the course of
     conduct that caused the loss or liability was in the best interests of the
     Partnership.

          (ii) The Indemnitee was acting on behalf of or performing services for
     the Partnership.

          (iii) Such liability or loss was not the result of:

               (A) negligence or misconduct by the Indemnitee (excluding the
          Independent Directors); or

               (B) gross negligence or willful misconduct by the Independent
          Directors.

      Any indemnification pursuant to this Section 6.3 shall be made only out of
the assets of the Partnership.

            (b) Notwithstanding the foregoing, the Partnership shall not
indemnify an Indemnitee or any Person acting as a broker-dealer for any loss,
liability or expense arising from or out of an alleged violation of federal or
state securities laws by such party unless one or more of the following
conditions are met: (i) there has been a successful adjudication on the merits
of each count involving alleged material securities law violations as to the
particular Indemnitee; (ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular Indemnitee;
or (iii) a court of competent jurisdiction approves a settlement of the claims
against a particular Indemnitee and finds that indemnification of the settlement
and the related costs should be made, and the court considering the request for
indemnification has been advised of the position of the Securities and Exchange
Commission and of the published position of any state securities regulatory
authority in which securities were offered or sold as to indemnification for
violations of securities laws.

            (c) The Partnership shall pay or reimburse reasonable legal expenses
and other costs incurred by the Indemnitee in advance of the final disposition
of a proceeding only if (in addition to the procedures required by the Act) all
of the following are satisfied: (a) the proceeding relates to acts or omissions
with respect to the performance of duties or services on behalf of the
Partnership, (b) the legal proceeding was initiated by a third party who is not
a Limited Partner or, if by a Limited Partner acting in his or her capacity as
such, a court of competent jurisdiction approves such advancement and (c) the
Indemnitee undertakes to repay the amount paid or reimbursed by the Partnership,
together with the applicable legal rate of interest thereon, if it is ultimately
determined that the Indemnitee is not entitled to indemnification.

            (d) The indemnification provided by this Section 6.3 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.

            (e) The Partnership may purchase and maintain insurance, on behalf
of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.

            (f) For purposes of this Section 6.3, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.3; and actions taken
or omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the

                                      -15-



participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.

            (g) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.

            (h) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.3 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.

            (i) The provisions of this Section 6.3 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.

            (j) Neither the amendment nor repeal of this Section 6.03, nor the
adoption or amendment of any other provision of the Agreement inconsistent with
Section 6.03, shall apply to or affect in any respect the applicability with
respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption.

      6.4 Liability of the General Partner.

            (a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith. The General Partner shall not be in breach of any duty that
the General Partner may owe to the Limited Partners or the Partnership or any
other Persons under this Agreement or of any duty stated or implied by law or
equity provided the General Partner, acting in good faith, abides by the terms
of this Agreement.

            (b) The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership, itself and its shareholders
collectively, that the General Partner is under no obligation to consider the
separate interests of the Limited Partners (including, without limitation, the
tax consequences to Limited Partners or the tax consequences of some, but not
all, of the Limited Partners) in deciding whether to cause the Partnership to
take (or decline to take) any actions. In the event of a conflict between the
interests of its shareholders on one hand and the Limited Partners on the other,
the General Partner shall endeavor in good faith to resolve the conflict in a
manner not adverse to either its shareholders or the Limited Partners; provided,
however, that for so long as the General Partner directly owns a controlling
interest in the Partnership, any such conflict that the General Partner, in its
sole and absolute discretion, determines cannot be resolved in a manner not
adverse to either its shareholders or the Limited Partner shall be resolved in
favor of the shareholders. The General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner has acted in good faith.

            (c) Subject to its obligations and duties as General Partner set
forth in Section 6.1 hereof, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.

            (d) Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner to continue to qualify as a REIT or (ii) to prevent the General Partner
from incurring any taxes under Section 857, Section 4981, or any other provision
of the Code, is expressly authorized under this Agreement and is deemed approved
by all of the Limited Partners.

            (e) Any amendment, modification or repeal of this Section 6.4 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 6.4 as in effect immediately prior to such
amendment, modification or repeal with respect to matters occurring, in whole or
in part, prior to such amendment, modification or repeal, regardless of when
claims relating to such matters may arise or be asserted.

                                      -16-



      6.5 Reimbursement of General Partner.

            (a) Except as provided in this Section 6.5 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it may be entitled), the General Partner
shall not be compensated for its services as general partner of the Partnership.

            (b) The General Partner shall be reimbursed on a monthly basis, or
such other basis as the General Partner may determine in its sole and absolute
discretion, for all Administrative Expenses.

      6.6 Outside Activities. The Articles of Incorporation and any agreements
entered into by the General Partner or its Affiliates with the Partnership or a
Subsidiary, any officer, director, employee, agent, trustee, Affiliate or
shareholder of the General Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities substantially similar
or identical to those of the Partnership. Neither the Partnership nor any of the
Limited Partners shall have any rights by virtue of this Agreement in any such
business ventures, interest or activities. None of the Limited Partners nor any
other Person shall have any rights by virtue of this Agreement or the
partnership relationship established hereby in any such business ventures,
interests or activities, and the General Partner shall have no obligation
pursuant to this Agreement to offer any interest in any such business ventures,
interests and activities to the Partnership or any Limited Partner, even if such
opportunity is of a character which, if presented to the Partnership or any
Limited Partner, could be taken by such Person.

      6.7 Employment or Retention of Affiliates.

            (a) Any Affiliate of the General Partner may be employed or retained
by the Partnership and may otherwise deal with the Partnership (whether as a
buyer, lessor, lessee, manager, furnisher of goods or services, broker, agent,
lender or otherwise) and may receive from the Partnership any compensation,
price, or other payment therefor which the General Partner determines to be fair
and reasonable.

            (b) The Partnership may lend or contribute to its Subsidiaries or
other Persons in which it has an equity investment, and such Persons may borrow
funds from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Subsidiary or any other Person.

            (c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions as the
General Partner deems are consistent with this Agreement, applicable law.

            (d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair and
reasonable to the Partnership.

      6.8 General Partner Participation. The General Partner agrees that all
business activities of the General Partner, including activities pertaining to
the acquisition, development or ownership of office or industrial property or
other property, shall be conducted through the Partnership or one or more
Subsidiary Partnerships; provided, however, that the General Partner is allowed
to make a direct acquisition, but if and only if, such acquisition is made in
connection with the issuance of Additional Securities, which direct acquisition
and issuance have been approved and determined to be in the best interests of
the General Partner and the Partnership by a majority of the Independent
Directors.

      6.9 Title to Partnership Assets. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or

                                      -17-



Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.

      6.10 Miscellaneous. In the event the General Partner redeems any REIT
Shares (other than REIT Shares redeemed in accordance with the share redemption
program of the General Partner through proceeds received from the General
Partner's dividend reinvestment plan), then the General Partner shall cause the
Partnership to purchase from the General Partner a number of Partnership Units
as determined based on the application of the Conversion Factor on the same
terms that the General Partner exchanged such REIT Shares. Moreover, if the
General Partner makes a cash tender offer or other offer to acquire REIT Shares,
then the General Partner shall cause the Partnership to make a corresponding
offer to the General Partner to acquire an equal number of Partnership Units
held by the General Partner. In the event any REIT Shares are exchanged by the
General Partner pursuant to such offer, the Partnership shall redeem an
equivalent number of the General Partner's Partnership Units for an equivalent
purchase price based on the application of the Conversion Factor.

                                    ARTICLE 7
                           CHANGES IN GENERAL PARTNER

      7.1 Transfer of the General Partner's Partnership Interest.


            (a) The General Partner shall not transfer all or any portion of its
General Partnership Interest or withdraw as General Partner except as provided
in or in connection with a transaction contemplated by Section 7.1(b), (c) or
(d).






            (b) Except as otherwise provided in Section 6.4(b) or Section 7.1(c)
or (e) hereof, the General Partner shall not engage in any merger, consolidation
or other combination with or into another Person or sale of all or substantially
all of its assets, (other than in connection with a change in the General
Partner's state of incorporation or organizational form) in each case which
results in a change of control of the General Partner (a "Transaction"), unless:


                  (i) the holders of a majority of the Partnership Units
(including the Partnership Units held by the General partner or an Affiliate
thereof) is obtained;

                  (ii) as a result of such Transaction all Limited Partners will
receive for each Partnership Unit an amount of cash, securities, or other
property equal to the product of the Conversion Factor and the greatest amount
of cash, securities or other property paid in the Transaction to a holder of one
REIT Share in consideration of one REIT Share, provided that if, in connection
with the Transaction, a purchase, tender or exchange offer ("Offer") shall have
been made to and accepted by the holders of more than 50% of the outstanding
REIT Shares, each holder of Partnership Units shall be given the option to
exchange its Partnership Units for the greatest amount of cash, securities, or
other property which a Limited Partner would have received had it (A) exercised
its Exchange Right and (B) sold, tendered or exchanged pursuant to the Offer the
REIT Shares received upon exercise of the Exchange Right immediately prior to
the expiration of the Offer; or

                  (iii) the General Partner is the surviving entity in the
Transaction and either (A) the holders of REIT Shares do not receive cash,
securities, or other property in the Transaction or (B) all Limited Partners
(other than the General Partner or any Subsidiary) receive an amount of cash,
securities, or other property (expressed as an amount per REIT Share) that is no
less than the product of the Conversion Factor and the greatest amount of cash,
securities, or other property (expressed as an amount per REIT Share) received
in the Transaction by any holder of REIT Shares.


            (c) Notwithstanding Section 7.1(b), the General Partner may merge
with or into or consolidate with another entity if immediately after such merger
or consolidation (i) substantially all of the assets of the successor or


                                      -18-




surviving entity (the "Surviving General Partner"), other than Partnership Units
held by the General Partner, are contributed, directly or indirectly, to the
Partnership as a Capital Contribution in exchange for Partnership Units with a
fair market value equal to the value of the assets so contributed as determined
by the Surviving General Partner in good faith and (ii) the Surviving General
Partner expressly agrees to assume all obligations of the General Partner, as
appropriate, hereunder. Upon such contribution and assumption, the Surviving
General Partner shall have the right and duty to amend this Agreement as set
forth in this Section 7.1(c). The Surviving General Partner shall in good faith
arrive at a new method for the calculation of the Cash Amount, the REIT Shares
Amount and Conversion Factor for a Partnership Unit after any such merger or
consolidation so as to approximate the existing method for such calculation as
closely as reasonably possible. Such calculation shall take into account, among
other things, the kind and amount of securities, cash and other property that
was receivable upon such merger or consolidation by a holder of REIT Shares or
options, warrants or other rights relating thereto, and to which a holder of
Partnership Units could have acquired had such Partnership Units been exchanged
immediately prior to such merger or consolidation. Such amendment to this
Agreement shall provide for adjustment to such method of calculation, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for with respect to the Conversion Factor. The Surviving General Partner also
shall in good faith modify the definition of REIT Shares and make such
amendments to Sections 8.5 and 8.7 hereof so as to approximate the existing
rights and obligations set forth in Sections 8.5 and 8.7 as closely as
reasonably possible. The above provisions of this Section 7.1(c) shall similarly
apply to successive mergers or consolidations permitted hereunder.


      In respect of any transaction described in the preceding paragraph, the
General Partner is required to use its commercially reasonable efforts to
structure such transaction to avoid causing the Limited Partners to recognize a
gain for federal income tax purposes by virtue of the occurrence of or their
participation in such transaction, provided such efforts are consistent with the
exercise of the Board of Directors' fiduciary duties to the shareholders of the
General Partner under applicable law.


            (e) Notwithstanding Section 7.1(b),


                  (i) a General Partner may transfer all or any portion of its
General Partnership Interest to (A) a wholly-owned Subsidiary of such General
Partner or (B) the owner of all of the ownership interests of such General
Partner, and following a transfer of all of its General Partnership Interest,
may withdraw as General Partner; and

                  (ii) the General Partner may engage in Transactions not\
required by law or by the rules of any national securities exchange on which the
REIT Shares are listed to be submitted to the vote of the holders of the REIT
Shares.

      7.2 Admission of a Substitute or Additional General Partner. A Person
shall be admitted as a substitute or additional General Partner of the
Partnership only if the following terms and conditions are satisfied:

            (a) the Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.5 hereof in connection
with such admission shall have been performed;

            (b) if the Person to be admitted as a substitute or additional
General Partner is a corporation or a partnership it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of such
Person's authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and

            (c) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.

                                      -19-



      7.3 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General
Partner.

            (a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.4(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.3(b) hereof. The merger of the
General Partner with or into any entity that is admitted as a substitute or
successor General Partner pursuant to Section 7.2 hereof shall not be deemed to
be the withdrawal, dissolution or removal of the General Partner.

            (b) Following the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.4(a) hereof) or the
death, withdrawal, removal or dissolution of a General Partner (except that, if
a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Limited Partners, within 90 days after such
occurrence, may elect to continue the business of the Partnership for the
balance of the term specified in Section 2.4 hereof by selecting, subject to
Section 7.2 hereof and any other provisions of this Agreement, a substitute
General Partner by consent of a majority in interest of the Limited Partners. If
the Limited Partners elect to continue the business of the Partnership and admit
a substitute General Partner, the relationship with the Partners and of any
Person who has acquired an interest of a Partner in the Partnership shall be
governed by this Agreement.

      7.4 Removal of a General Partner.

            (a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; provided, however, that if a General Partner is on the
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners. The Limited Partners
may not remove the General Partner, with or without cause.

            (b) If a General Partner has been removed pursuant to this Section
7.4 and the Partnership is continued pursuant to Section 7.3 hereof, such
General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners in accordance with Section 7.3(b)
hereof and otherwise admitted to the Partnership in accordance with Section 7.2
hereof. At the time of assignment, the removed General Partner shall be entitled
to receive from the substitute General Partner the fair market value of the
General Partnership Interest of such removed General Partner as reduced by any
damages caused to the Partnership by such General Partner. Such fair market
value shall be determined by an appraiser mutually agreed upon by the General
Partner and a majority in interest of the Limited Partners within 10 days
following the removal of the General Partner. In the event that the parties are
unable to agree upon an appraiser, the removed General Partner and a majority in
interest of the Limited Partners each shall select an appraiser. Each such
appraiser shall complete an appraisal of the fair market value of the removed
General Partner's General Partnership Interest within 30 days of the General
Partner's removal, and the fair market value of the removed General Partner's
General Partnership Interest shall be the average of the two appraisals;
provided, however, that if the higher appraisal exceeds the lower appraisal by
more than 20% of the amount of the lower appraisal, the two appraisers, no later
than 40 days after the removal of the General Partner, shall select a third
appraiser who shall complete an appraisal of the fair market value of the
removed General Partner's General Partnership Interest no later than 60 days
after the removal of the General Partner. In such case, the fair market value of
the removed General Partner's General Partnership Interest shall be the average
of the two appraisals closest in value.

            (c) The General Partnership Interest of a removed General Partner,
during the time after default until transfer under Section 7.4(b), shall be
converted to that of a special Limited Partner; provided, however, such removed
General Partner shall not have any rights to participate in the management and
affairs of the Partnership, and shall not be entitled to any portion of the
income, expense, profit, gain or loss allocations or cash distributions
allocable or payable, as the case may be, to the Limited Partners. Instead, such
removed General Partner shall receive and be

                                      -20-

entitled only to retain distributions or allocations of such items that it would
have been entitled to receive in its capacity as General Partner, until the
transfer is effective pursuant to Section 7.4(b).

            (d) All Partners shall have given and hereby do give such consents,
shall take such actions and shall execute such documents as shall be legally
necessary and sufficient to effect all the foregoing provisions of this Section.

                                    ARTICLE 8
                 RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS

      8.1 Management of the Partnership. The Limited Partners shall not
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.

      8.2 Power of Attorney. Each Limited Partner hereby irrevocably appoints
the General Partner its true and lawful attorney-in-fact, who may act for each
Limited Partner and in its name, place and stead, and for its use and benefit,
to sign, acknowledge, swear to, deliver, file or record, at the appropriate
public offices, any and all documents, certificates, and instruments as may be
deemed necessary or desirable by the General Partner to carry out fully the
provisions of this Agreement and the Act in accordance with their terms, which
power of attorney is coupled with an interest and shall survive the death,
dissolution or legal incapacity of the Limited Partner, or the transfer by the
Limited Partner of any part or all of its Partnership Interest.

      8.3 Limitation on Liability of Limited Partners. No Limited Partner shall
be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of its Capital Contribution, if any, as and when due hereunder. After
its Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.

      8.4 Ownership by Limited Partner of Corporate General Partner or
Affiliate. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal tax purposes. The General Partner shall be entitled to
make such reasonable inquiry of the Limited Partners as is required to establish
compliance by the Limited Partners with the provisions of this Section.

      8.5 Exchange Right.


            (a) Subject to Sections 8.5(b), 8.5(c), 8.5(d), 8.5(e) and 8.5(f)
and the provisions of any agreements between the Partnership and one or more
Limited Partners with respect to Partnership Units held by them, each Limited
Partner, other than the General Partner, shall have the right (the "Exchange
Right") to require the Partnership to redeem on a Specified Exchange Date all or
a portion of the Partnership Units held by such Limited Partner at an exchange
price equal to and in the form of the Cash Amount to be paid by the Partnership,
provided that such Partnership Units shall have been outstanding for at least
one year. The Exchange Right shall be exercised pursuant to a Notice of Exchange
delivered to the Partnership (with a copy to the General Partner) by the Limited
Partner who is exercising the Exchange Right (the "Exchanging Partner");
provided, however, that the Partnership shall not be obligated to satisfy such
Exchange Right if the General Partner elects to purchase the Partnership Units
subject to the Notice of Exchange pursuant to Section 8.5(b); and provided,
further, that no Limited Partner may deliver more than two Notices of Exchange
during each calendar year. A Limited Partner may not exercise the Exchange Right
for less than 1,000 Partnership Units or, if such Limited Partner holds less
than 1,000 Partnership Units, all of the Partnership Units held by such Partner.
The Exchanging Partner shall have no right, with respect to any Partnership
Units so exchanged, to receive any distribution paid with respect to Partnership
Units if the record date for such distribution is on or after the Specified
Exchange Date.


            (b) Notwithstanding the provisions of Section 8.5(a), a Limited
Partner that exercises the Exchange Right shall be deemed to have offered to
sell the Partnership Units described in the Notice of Exchange to the General
Partner, and the General Partner may, in its sole and absolute discretion, elect
to purchase directly and acquire

                                      -21-


such Partnership Units by paying to the Exchanging Partner either the Cash
Amount or the REIT Shares Amount, as elected by the General Partner (in its sole
and absolute discretion), on the Specified Exchange Date, whereupon the General
Partner shall acquire the Partnership Units offered for exchange by the
Exchanging Partner and shall be treated for all purposes of this Agreement as
the owner of such Partnership Units. If the General Partner shall elect to
exercise its right to purchase Partnership Units under this Section 8.5(b) with
respect to a Notice of Exchange, it shall so notify the Exchanging Partner
within five Business Days after the receipt by the General Partner of such
Notice of Exchange. Unless the General Partner (in its sole and absolute
discretion) shall exercise its right to purchase Partnership Units from the
Exchanging Partner pursuant to this Section 8.5(b), the General Partner shall
have no obligation to the Exchanging Partner or the Partnership with respect to
the Exchanging Partner's exercise of the Exchange Right. In the event the
General Partner shall exercise its right to purchase Partnership Units with
respect to the exercise of a Exchange Right in the manner described in the first
sentence of this Section 8.5(b), the Partnership shall have no obligation to pay
any amount to the Exchanging Partner with respect to such Exchanging Partner's
exercise of such Exchange Right, and each of the Exchanging Partner, the
Partnership, and the General Partner, as the case may be, shall treat the
transaction between the General Partner, as the case may be, and the Exchanging
Partner for federal income tax purposes as a sale of the Exchanging Partner's
Partnership Units to the General Partner, as the case may be. Each Exchanging
Partner agrees to execute such documents as the General Partner may reasonably
require in connection with the issuance of REIT Shares upon exercise of the
Exchange Right.

            (c) Notwithstanding the provisions of Section 8.5(a) and 8.5(b), a
Limited Partner shall not be entitled to exercise the Exchange Right if the
delivery of REIT Shares to such Partner on the Specified Exchange Date by the
General Partner pursuant to Section 8.5(b) (regardless of whether or not the
General Partner would in fact exercise its rights under Section 8.5(b)) would
(i) result in such Partner or any other person owning, directly or indirectly,
REIT Stock in excess of the Ownership Limit (as defined in the Articles of
Incorporation and calculated in accordance therewith), except as provided in the
Articles of Incorporation, (ii) result in REIT Stock being owned by fewer than
100 persons (determined without reference to any rules of attribution), except
as provided in the Articles of Incorporation, (iii) result in the General
Partner being "closely held" within the meaning of Section 856(h) of the Code,
or (iv) cause the General Partner to own, directly or constructively, 10% or
more of the ownership interests in a tenant within the meaning of Section
856(d)(2)(B) of the Code. The General Partner, in its sole and absolute
discretion, may waive the restriction on exchange set forth in this Section
8.5(c).

            (d) Any Cash Amount to be paid to an Exchanging Partner pursuant to
this Section 8.5 shall be paid on the Specified Exchange Date; provided,
however, that the General Partner may elect to cause the Specified Exchange Date
to be delayed for up to an additional 180 days to the extent required for the
General Partner to cause additional REIT Shares to be issued to provide
financing to be used to make such payment of the Cash Amount. Notwithstanding
the foregoing, the General Partner agrees to use its best efforts to cause the
closing of the acquisition of exchanged Partnership Units hereunder to occur as
quickly as reasonably possible.

            (e) Notwithstanding any other provision of this Agreement, the
General Partner shall place appropriate restrictions on the ability of the
Limited Partners to exercise their Exchange Rights as and if deemed necessary to
ensure that the Partnership does not constitute a "publicly traded partnership"
under section 7704 of the Code. If and when the General Partner determines that
imposing such restrictions is necessary, the General Partner shall give prompt
written notice thereof (a "Restriction Notice") to each of the Limited Partners,
which notice shall be accompanied by a copy of an opinion of counsel to the
Partnership which states that, in the opinion of such counsel, restrictions are
necessary in order to avoid the Partnership being treated as a "publicly traded
partnership" under section 7704 of the Code.


            (f) Notwithstanding anything else in this Agreement to the contrary,
Cornerstone Realty Advisors, LLC is prohibited from exchanging the Partnership
Units purchased by it on July 15, 2005 for $200,000 cash at any time prior to
July 15, 2007 and the General Partner hereby agrees that it will not permit the
amendment of this Agreement to permit the exchange of the Partnership Units
owned by Cornerstone Realty Advisors, LLC prior to July 15, 2007.


                                    ARTICLE 9
                   TRANSFERS OF LIMITED PARTNERSHIP INTERESTS

      9.1 Purchase for Investment.

            (a) Each Limited Partner hereby represents and warrants to the
General Partner and to the Partnership that the acquisition of his Partnership
Interests is made as a principal for his account for investment purposes only
and not with a view to the resale or distribution of such Partnership Interest.

                                      -22-


            (b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.1(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.

      9.2 Restrictions on Transfer of Limited Partnership Interests.

            (a) Subject to the provisions of 9.2(b), (c) and (d), no Limited
Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer all
or any portion of his Limited Partnership Interest, or any of such Limited
Partner's economic rights as a Limited Partner, whether voluntarily or by
operation of law or at judicial sale or otherwise (collectively, a "Transfer")
without the consent of the General Partner, which consent may be granted or
withheld in its sole and absolute discretion. Any such purported transfer
undertaken without such consent shall be considered to be null and void ab
initio and shall not be given effect. The General Partner may require, as a
condition of any Transfer to which it consents, that the transferor assume all
costs incurred by the Partnership in connection therewith.

            (b) No Limited Partner may withdraw from the Partnership other than
as a result of a permitted Transfer (i.e., a Transfer consented to as
contemplated by clause (a) above or clause (c) below or a Transfer pursuant to
Section 9.5 below) of all of its Partnership Interest pursuant to this Article 9
or pursuant to an exchange of all of its Partnership Units pursuant to Section
8.5. Upon the permitted Transfer or redemption of all of a Limited Partner's
Partnership Interest, such Limited Partner shall cease to be a Limited Partner.

            (c) Subject to 9.2(d), (e) and (f) below, a Limited Partner may
Transfer, with the consent of the General Partner, all or a portion of its
Partnership Units to (i) a parent or parent's spouse, natural or adopted
descendant or descendants, spouse of such descendant, or brother or sister, or a
trust created by such Limited Partner for the benefit of such Limited Partner
and/or any such person(s), of which trust such Limited Partner or any such
person(s) is a trustee, (ii) a corporation controlled by a Person or Persons
named in (i) above, or (iii) if the Limited Partner is an entity, its beneficial
owners.

            (d) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would otherwise violate any
applicable federal or state securities or blue sky law (including investment
suitability standards).

            (e) No Transfer by a Limited Partner of its Partnership Units, in
whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the
opinion of legal counsel for the Partnership, it would adversely affect the
ability of the General Partner to continue to qualify as a REIT or subject the
General Partner to any additional taxes under Section 857 or Section 4981 of the
Code, or (iii) such transfer is effectuated through an "established securities
market" or a "secondary market (or the substantial equivalent thereof)" within
the meaning of Section 7704 of the Code.

            (f) No transfer of any Partnership Units may be made to a lender to
the Partnership or any Person who is related (within the meaning of Regulations
Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes a
nonrecourse liability (within the meaning of Regulations Section 1.752-1(a)(2)),
without the consent of the General Partner, which may be withheld in its sole
and absolute discretion, provided that as a condition to such consent the lender
will be required to enter into an arrangement with the Partnership and the
General Partner to exchange or redeem for the Cash Amount any Partnership Units
in which a security interest is held simultaneously with the time at which such
lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.

            (g) Any Transfer in contravention of any of the provisions of this
Article 9 shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.

                                      -23-


            (h) Prior to the consummation of any Transfer under this Article 9,
the transferor and/or the transferee shall deliver to the General Partner such
opinions, certificates and other documents as the General Partner shall request
in connection with such Transfer.

      9.3 Admission of Substitute Limited Partner.

            (a) Subject to the other provisions of this Article 9, an assignee
of the Limited Partnership Interest of a Limited Partner (which shall be
understood to include any purchaser, transferee, donee, or other recipient of
any disposition of such Limited Partnership Interest) shall be deemed admitted
as a Limited Partner of the Partnership only with the consent of the General
Partner and upon the satisfactory completion of the following:

                  (i) The assignee shall have accepted and agreed to be bound by
the terms and provisions of this Agreement by executing a counterpart or an
amendment thereof, including a revised Exhibit A, and such other documents or
instruments as the General Partner may require in order to effect the admission
of such Person as a Limited Partner.

                  (ii) To the extent required, an amended Certificate evidencing
the admission of such Person as a Limited Partner shall have been signed,
acknowledged and filed for record in accordance with the Act.

                  (iii) The assignee shall have delivered a letter containing
the representation set forth in Section 9.1(a) hereof and the agreement set
forth in Section 9.1(b) hereof.

                  (iv) If the assignee is a corporation, partnership or trust,
the assignee shall have provided the General Partner with evidence satisfactory
to counsel for the Partnership of the assignee's authority to become a Limited
Partner under the terms and provisions of this Agreement.

                  (v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.2 hereof.

                  (vi) The assignee shall have paid all legal fees and other
expenses of the Partnership and the General Partner and filing and publication
costs in connection with its substitution as a Limited Partner.

                  (vii) The assignee has obtained the prior written consent of
the General Partner to its admission as a Substitute Limited Partner, which
consent may be given or denied in the exercise of the General Partner's sole and
absolute discretion.

            (b) For the purpose of allocating Profits and Losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and appearing in the records of the
Partnership as, a Partner upon the filing of the Certificate described in
Section 9.3(a)(ii) hereof or, if no such filing is required, the later of the
date specified in the transfer documents or the date on which the General
Partner has received all necessary instruments of transfer and substitution.

            (c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by preparing the documentation required by
this Section and making all official filings and publications. The Partnership
shall take all such action as promptly as practicable after the satisfaction of
the conditions in this Article 9 to the admission of such Person as a Limited
Partner of the Partnership.

      9.4 Rights of Assignees of Partnership Interests.

            (a) Subject to the provisions of Sections 9.1 and 9.2 hereof, except
as required by operation of law, the Partnership shall not be obligated for any
purposes whatsoever to recognize the assignment by any Limited Partner of its
Partnership Interest until the Partnership has received notice thereof.

            (b) Any Person who is the assignee of all or any portion of a
Limited Partner's Limited Partnership Interest, but does not become a Substitute
Limited Partner and desires to make a further assignment of such

                                      -24-


Limited Partnership Interest, shall be subject to all the provisions of this
Article 9 to the same extent and in the same manner as any Limited Partner
desiring to make an assignment of its Limited Partnership Interest.

      9.5 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited
Partner. The occurrence of an Event of Bankruptcy as to a Limited Partner, the
death of a Limited Partner or a final adjudication that a Limited Partner is
incompetent (which term shall include, but not be limited to, insanity) shall
not cause the termination or dissolution of the Partnership, and the business of
the Partnership shall continue if an order for relief in a bankruptcy proceeding
is entered against a Limited Partner, the trustee or receiver of his estate or,
if he dies, his executor, administrator or trustee, or, if he is finally
adjudicated incompetent, his committee, guardian or conservator, shall have the
rights of such Limited Partner for the purpose of settling or managing his
estate property and such power as the bankrupt, deceased or incompetent Limited
Partner possessed to assign all or any part of his Partnership Interest and to
join with the assignee in satisfying conditions precedent to the admission of
the assignee as a Substitute Limited Partner.

      9.6 Joint Ownership of Interests. A Partnership Interest may be acquired
by two individuals as joint tenants with right of survivorship, provided that
such individuals either are married or are related and share the same home as
tenants in common. The written consent or vote of both owners of any such
jointly held Partnership Interest shall be required to constitute the action of
the owners of such Partnership Interest; provided, however, that the written
consent of only one joint owner will be required if the Partnership has been
provided with evidence satisfactory to the counsel for the Partnership that the
actions of a single joint owner can bind both owners under the applicable laws
of the state of residence of such joint owners. Upon the death of one owner of a
Partnership Interest held in a joint tenancy with a right of survivorship, the
Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an assignee. The Partnership need not recognize the death of
one of the owners of a jointly-held Partnership Interest until it shall have
received notice of such death. Upon notice to the General Partner from either
owner, the General Partner shall cause the Partnership Interest to be divided
into two equal Partnership Interests, which shall thereafter be owned separately
by each of the former owners.

      9.7 Redemption of Partnership Units. The General Partner will cause the
Partnership to redeem Partnership Units, to the extent it shall have legally
available funds therefor, at any time the General Partner redeems shares of
beneficial interest in itself. The number and class or series of Partnership
Units redeemed and the redemption price shall equal the number (multiplied by
the Conversion Factor) of shares of beneficial interest the General Partner
redeems and the redemption price at which the General Partner redeems such
shares, respectively.

                                   ARTICLE 10
                   BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS

      10.1 Books and Records. At all times during the continuance of the
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full name
and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of
the Partnership's federal, state and local income tax returns and reports, (d)
copies of this Agreement and amendments thereto and any financial statements of
the Partnership for the three most recent years and (e) all documents and
information required under the Act. Any Partner or its duly authorized
representative, upon paying the costs of collection, duplication and mailing,
shall be entitled to inspect or copy such records during ordinary business
hours.

      10.2 Custody of Partnership Funds; Bank Accounts.

            (a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.

            (b) All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in investment
grade instruments (or investment companies whose portfolio consists primarily
thereof), government obligations, certificates of deposit, bankers' acceptances
and municipal notes and bonds. The funds of the Partnership shall not be
commingled with the funds of any other Person except for such

                                      -25-


commingling as may necessarily result from an investment in those investment
companies permitted by this Section 10.2(b).

      10.3 Fiscal and Taxable Year. The fiscal and taxable year of the
Partnership shall be the calendar year.

      10.4 Annual Tax Information and Report. Within 75 days after the end of
each fiscal year of the Partnership, the General Partner shall furnish to each
person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.

      10.5 Tax Matters Partner; Tax Elections; Special Basis Adjustments.

            (a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters
Partner, the General Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the Code for the Tax Matters
Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such petition is filed, or (ii) mail
a written notice to all Limited Partners, within such period, that describes the
General Partner's reasons for determining not to file such a petition.

            (b) All elections required or permitted to be made by the
Partnership under the Code or any applicable state or local tax law shall be
made by the General Partner in its sole and absolute discretion.

            (c) In the event of a transfer of all or any part of the Partnership
Interest of any Partner, the Partnership, at the option of the General Partner,
may elect pursuant to Section 754 of the Code to adjust the basis of the
Partnership's assets. Notwithstanding anything contained in Article 5 of this
Agreement, any adjustments made pursuant to Section 754 of the Code shall affect
only the successor in interest to the transferring Partner and in no event shall
be taken into account in establishing, maintaining or computing Capital Accounts
for the other Partners for any purpose under this Agreement. Each Partner will
furnish the Partnership with all information necessary to give effect to such
election.

      10.6 Reports to Limited Partners.

            (a) As soon as practicable after the close of each fiscal quarter
(other than the last quarter of the fiscal year), the General Partner shall
cause to be mailed to each Limited Partner a quarterly report containing
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
for such fiscal quarter, presented in accordance with generally accepted
accounting principles. As soon as practicable after the close of each fiscal
year, the General Partner shall cause to be mailed to each Limited Partner an
annual report containing financial statements of the Partnership, or of the
General Partner if such statements are prepared solely on a consolidated basis
with the General Partner, for such fiscal year, presented in accordance with
generally accepted accounting principles. The annual financial statements shall
be audited by accountants selected by the General Partner.

            (b) Any Partner shall further have the right to a private audit of
the books and records of the Partnership at the expense of such Partner,
provided such audit is made for Partnership purposes and is made during normal
business hours.

                                   ARTICLE 11
                         AMENDMENT OF AGREEMENT; MERGER

      The General Partner's consent shall be required for any amendment to this
Agreement. The General Partner, without the consent of the Limited Partners, may
amend this Agreement in any respect or merge or consolidate the Partnership with
or into any other partnership or business entity (as defined in Section 17-211
of the Act) in a transaction pursuant to Section 7.1(c), (d) or (e) hereof;
provided, however, that the following amendments and any

                                      -26-



other merger or consolidation of the Partnership shall require the consent
of Limited Partners holding more than 50% of the Percentage Interests of the
Limited Partners:

            (a) any amendment affecting the operation of the Conversion Factor
or the Exchange Right (except as provided in Section 8.5(d) or 7.1(d) hereof) in
a manner adverse to the Limited Partners;

            (b) any amendment that would adversely affect the rights of the
Limited Partners to receive the distributions payable to them hereunder, other
than with respect to the issuance of additional Partnership Units pursuant to
Section 4.2 hereof;

            (c) any amendment that would alter the Partnership's allocations of
Profit and Loss to the Limited Partners, other than with respect to the issuance
of additional Partnership Units pursuant to Section 4.2 hereof; or

            (d) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership.

                                   ARTICLE 12
                               GENERAL PROVISIONS

      12.1 Notices. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A attached hereto; provided, however, that any Partner may
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.

      12.2 Survival of Rights. Subject to the provisions hereof limiting
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.

      12.3 Additional Documents. Each Partner agrees to perform all further acts
and execute, swear to, acknowledge and deliver all further documents which may
be reasonable, necessary, appropriate or desirable to carry out the provisions
of this Agreement or the Act.

      12.4 Severability. If any provision of this Agreement shall be declared
illegal, invalid, or unenforceable in any jurisdiction, then such provision
shall be deemed to be severable from this Agreement (to the extent permitted by
law) and in any event such illegality, invalidity or unenforceability shall not
affect the remainder hereof.

      12.5 Entire Agreement. This Agreement and exhibits attached hereto
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.

      12.6 Pronouns and Plurals. When the context in which words are used in the
Agreement indicates that such is the intent, words in the singular number shall
include the plural and the masculine gender shall include the neuter or female
gender as the context may require.

      12.7 Headings. The Article headings or sections in this Agreement are for
convenience only and shall not be used in construing the scope of this Agreement
or any particular Article.

      12.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original copy and all of which together
shall constitute one and the same instrument binding on all parties hereto,
notwithstanding that all parties shall not have signed the same counterpart.

                                      -27-


      12.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware; provided, however, that
causes of action for violations of federal or state securities laws shall not be
governed by this Section 12.9.


      IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Agreement of Limited Partnership, all as of the 15th day of
July, 2005.

                                    GENERAL PARTNER:

                                    CORNERSTONE CORE PROPERTIES REIT, INC.

                                    By: /s/ TERRY G. ROUSSEL
                                        ------------------------------------
                                        Terry G. Roussel, President


                                    LIMITED PARTNERS:

                                    CORNERSTONE ADVISORS, LLC

                                    By: CORNERSTONE VENTURES, INC.
                                        Managing Member

                                        By: /s/ TERRY G. ROUSSEL
                                            --------------------------------
                                            Terry G. Roussel, President


                                      -28-


                                    EXHIBIT A


                                                                          AGREED
         PERCENTAGE                                                      VALUE OF
          PARTNER                                      CASH               CAPITAL                  PARTNERSHIP
          INTEREST                                 CONTRIBUTION        CONTRIBUTION                   UNITS
         ----------                                ------------        ------------                -----------
                                                                                          
GENERAL PARTNER:
Cornerstone Core Properties REIT, Inc.
4590 MacArthur Blvd.
Suite 610
Newport Beach, California 92660                    $1,000              0                           125

ORIGINAL LIMITED PARTNER:
Cornerstone Advisors, LLC
4590 MacArthur Blvd.
Suite 610
Newport Beach, California 92660                    $200,000            $200,000                    25,000

           Totals                                  $201,000            $200,000                    25,125


                                      -29-


                                    EXHIBIT B

                      NOTICE OF EXERCISE OF EXCHANGE RIGHT

      In accordance with Section 8.5 of the Agreement of Limited Partnership
(the "Agreement") of Cornerstone Operating Partnership, L.P., the undersigned
hereby irrevocably (i) presents for exchange ________ Partnership Units in
Cornerstone Operating Partnership, L.P. in accordance with the terms of the
Agreement and the Exchange Right referred to in Section 8.5 thereof, (ii)
surrenders such Partnership Units and all right, title and interest therein, and
(iii) directs that the Cash Amount or REIT Stock Amount (as defined in the
Agreement) as determined by the General Partner deliverable upon exercise of the
Exchange Right be delivered to the address specified below, and if REIT Stock
(as defined in the Agreement) are to be delivered, such REIT Shares be
registered or placed in the name(s) and at the address(es) specified below.

Dated:  ____________, ____

                            ___________________________________
                            (Name of Limited Partner)

                            ___________________________________
                            (Signature of Limited Partner)

                            ___________________________________
                                     (Mailing Address)

                            ___________________________________
                            (City)        (State) (Zip Code)

                            Signature Guaranteed by:

                            ___________________________________

If REIT Stock is to be issued, issue to:

Name:

________________________________________

Social Security or Tax I.D. Number:

________________________________________

                                      -30-


                                    EXHIBIT C

                            INDEMNIFICATION GUIDELINE

      1. The REIT shall not provide for indemnification of the TRUSTEES,
ADVISORS or AFFILIATES for any liability or loss suffered by the TRUSTEES,
ADVISORS or AFFILIATES, nor shall it provide that the TRUSTEES, ADVISORS or
AFFILIATES be held harmless for any loss or liability suffered by the REIT,
unless all of the following conditions are met:

            (a) The TRUSTEES, ADVISORS or AFFILIATES have determined, in good
faith, that the course of conduct which caused the loss or liability was in the
best interests of the REIT.

            (b) The TRUSTEES, ADVISORS or AFFILIATES were acting on behalf of or
performing services for the REIT.

            (c) Such liability or loss was not the result of:

                  (i) negligence or misconduct by the TRUSTEES, excluding the
INDEPENDENT TRUSTEES, ADVISORS or AFFILIATES; OR

                  (ii) gross negligence or willful misconduct by the INDEPENDENT
TRUSTEES.

            (d) Such indemnification or agreement to hold harmless is
recoverable only out of REIT net assets and not from SHAREHOLDERS.

      2. Notwithstanding anything to the contrary contained in Section II.G.1,
the TRUSTEES, ADVISORS or AFFILIATES and any persons acting as a broker-dealer
shall not be indemnified by the REIT for any losses, liabilities or expenses
arising from or out of an alleged violation of federal or state securities laws
by such party unless one or more of the following conditions are met:

            (a) There has been a successful adjudication on the merits of each
count involving alleged securities law violations as to the particular
indemnitee.

            (b) Such claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction as to the particular Indemnitee.

            (c) A court of competent jurisdiction approves a settlement of the
claims against a particular indemnitee and finds that indemnification of the
settlement and the related costs should be made, and the court considering the
request for indemnification has been advised of the position of the Securities
and Exchange SEC and of the published position of any state securities
regulatory authority in which securities of the REIT were offered or sold as to
indemnification for violations of securities laws.

      3. The advancement of REIT funds to the TRUSTEES, ADVISORS or AFFILIATES
for legal expenses and other costs incurred as a result of any legal action for
which indemnification is being sought is permissible only if all of the
following conditions are satisfied:

            (a) The legal action relates to acts or omissions with respect to
the performance of duties or services on behalf of the REIT.

            (b) The legal action is initiated by a third party who is not a
SHAREHOLDER or the legal action is initiated by a SHAREHOLDER acting in his or
her capacity as such and a court of competent jurisdiction specifically approves
such advancement.

            (c) The TRUSTEES, ADVISORS and AFFILIATES undertake to repay the
advanced funds to the REIT, together with the applicable legal rate of interest
thereon, in cases in which such TRUSTEES, ADVISORS or AFFILIATES are found not
to be entitled to indemnification.

                                      -31-

EX-23.1

EXHIBIT 23.1

CONSENT OF PRESTON GATES & ELLIS LLP

We consent to the use of our name under the heading “Legal Matters” in the Prospectus constituting a part of the Registration Statement of Cornerstone Core Properties REIT, Inc. In giving such consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder.

Irvine, California
August 30, 2005 /s/ PRESTON GATES & ELLIS LLP

EX-23.2

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in the Prospectus constituting a part of this Pre-Effective Amendment No. 4 to Registration Statement of our report dated August 1, 2005 relating to the consolidated balance sheets as of July 15, 2005 and December 31, 2004 of Cornerstone Core Properties REIT, Inc., which are contained in that Prospectus. We also consent to the reference to us under the caption “Experts” in the Prospectus.

/s/ BDO SEIDMAN, LLP

Costa Mesa, California
August 29, 2005