1407
      BROADWAY MEZZ II LLC and SUBSIDIARIES





For
      The
      Period January 4, 2007 (date of inception) through December 31,
      2007


PageReport
                  of Independent Registered Public Accounting Firm
              
              
              1Consolidated
                  Balance Sheet
              
              
              2Consolidated
                  Statement of Operations
              
              
              3Consolidated
                  Statement of Members’ Capital
              
              
              4Consolidated
                  Statement of Cash Flows
              
              
              5Notes
                  to Consolidated Financial Statements
              
              
              6
                  - 20







Report
      of
      Independent Registered Public Accounting Firm




Members


1407
      Broadway Mezz II LLC





We
      have
      audited the accompanying consolidated balance sheet of 1407 Broadway Mezz II
      LLC
      and Subsidiaries (the “Company”) as of December 31, 2007, and the related
      consolidated statement of operations, members’ capital and cash flows for the
      period January 4, 2007 (date of inception) through December 31, 2007. These
      financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform an audit of its internal control over
      financial reporting. Our audit 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 financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of 1407 Broadway Mezz II LLC
      and Subsidiaries as of December 31, 2007, and the results of their operations
      and their cash flows for period January 4, 2007 (date of inception)
      through December 31 2007, in conformity with accounting principles generally
      accepted in the United States of America.









/s/
      Amper, Politziner & Mattia, P.C.




March
      28,
      2008


Edison,
      New Jersey




-1-




1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Consolidated
        Balance Sheet
 December
        31, 2007
 AssetsReal
                    estate, at costBuilding
                    and improvements
                
                $
                106,394,693Tenant
                    improvements
                
                
                12,461,728118,856,421Less
                    accumulated depreciation
                
                
                (7,495,184
                )111,361,237In-place
                    lease intangibles, net of accumulated amortization of
                    $7,159,460
                
                
                6,891,569Above-market
                    lease intangibles, net of accumulated amortization of
                    $1,335,085
                
                
                2,118,107Total
                    real estate
                
                
                120,370,913Cash
                
                
                1,986,588Restricted
                    cash escrows
                
                
                9,471,509Accounts
                    receivable, net of allowance of $393,382
                
                
                1,344,327Accrued
                    straight lined rent
                
                
                950,788Deferred
                    costs, net of accumulated amortization of $2,029,572
                
                
                3,319,757Prepaid
                    real estate taxes
                
                
                3,033,932Prepaid
                    and other assets
                
                
                827,053Total
                    assets
                
                $
                141,304,867Liabilities
                    and Members' CapitalMortgage
                    note payable
                
                $
                110,847,201Accrued
                    interest payable
                
                
                431,418Accounts
                    payable and accrued liabilities
                
                
                2,725,770Accrued
                    tenant improvement allowances
                
                
                987,680Deferred
                    rental income
                
                
                456,262Below-market
                    lease intangibles, net of accumulated amortization of
                    $1,526,150
                
                
                4,876,419Tenant
                    security deposits
                
                
                8,162,813Total
                    liabilities
                
                
                128,487,563Commitments
                    and ContingenciesMembers'
                    Capital
                
                
                12,817,304Total
                    liabilities and members' capital
                
                $
                141,304,867
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  -2-
 1407
          BROADWAY MEZZ II LLC and SUBSIDIARIES
 Consolidated
          Statement of Operations
 For
          the
          Period January 4, 2007 (date of inception) through December 31,
          2007
 RevenueRental
                  
                  $
                  36,119,292Tenant
                      reimbursements
                  
                  
                  1,328,150Total
                      revenue
                  
                  
                  37,447,442ExpensesProperty
                      operations
                  
                  
                  20,290,118Real
                      estate taxes
                  
                  
                  6,411,362Depreciation
                  
                  
                  7,495,184Amortization
                  
                  
                  8,719,735Interest,
                          including amortization of  deferred financing costs of
                          $469,297
                  
                  
                  9,490,576Total
                      expenses
                  
                  
                  52,406,975Operating
                      loss
                  
                  
                  (14,959,533
                  )Other
                      income
                  
                  
                  126,985Net
                      loss
                  
                  $
                  (14,832,548
                  )
  The
            accompanying notes are an integral part of these consolidated financial
            statements
  -3-
 1407
          BROADWAY MEZZ II LLC and SUBSIDIARIES
 Consolidated
          Statement of Members' Capital
 For
          the
          Period January 4, 2007 (date of inception) through December 31,
          2007.
 TotalLightstone
                      1407
                  
                  LVP
                      1407
                  
                  Members'Manager,
                      LLC
                  
                  Broadway
                      LLC
                  
                  CapitalInitial
                      contributions at date of inception on January 4, 2007
                  
                  $
                  13,511,866
                  
                  $
                  12,981,989
                  
                  $
                  26,493,855Contributions
                  
                  
                  589,558
                  
                  
                  566,439
                  
                  
                  1,155,997Net
                      loss
                  
                  
                  (7,564,599
                  )
                  
                  (7,267,949
                  )
                  
                  (14,832,548
                  )Balance,
                      December 31, 2007
                  
                  $
                  6,536,825
                  
                  $
                  6,280,479
                  
                  $
                  12,817,304
  The
            accompanying notes are an integral part of these consolidated financial
            statements.
  -4-
 1407
          BROADWAY MEZZ II LLC and SUBSIDIARIES
 Consolidated
          Statement of Cash Flows
 For
          the
          Period from January 4, 2007 (date of inception) through December 31,
          2007
 Cash
                      flows from operating activitiesNet
                      loss
                  
                  $
                  (14,832,548
                  )Adjustments
                          to reconcile net loss to net cash  provided by operating
                          activitiesAmortization
                          of above/below-market lease intangibles (included in rental
                          revenue)
                  
                  
                  (191,065
                  )Depreciation
                      and amortization
                  
                  
                  16,214,919Amortization
                      of deferred financing costs
                  
                  
                  469,297Changes
                      in other operating assets and liabilitiesAccounts
                      receivable
                  
                  
                  (1,344,327
                  )Accrued
                      straight lined rent
                  
                  
                  (950,788
                  )Prepaid
                      real estate tax
                  
                  
                  (3,033,932
                  )Prepaid
                      and other assets
                  
                  
                  (827,053
                  )Accrued
                      interest payable
                  
                  
                  431,418Accounts
                      payable and accrued liabilities
                  
                  
                  2,725,770Deferred
                      rental income
                  
                  
                  456,262Net
                      cash provided by operating activities
                  
                  
                  (882,047
                  )Cash
                      flows from investing activitiesExpenditures
                      for real estate
                  
                  
                  (132,489,505
                  )Increase
                      in restricted cash escrows, primarily security deposits
                  
                  
                  (9,471,509
                  )Security
                      deposits
                  
                  
                  8,162,813Payment
                      of leasing costs
                  
                  
                  (251,803
                  )Net
                      cash used in investing activities
                  
                  
                  (134,050,004
                  )Cash
                      flows from financing activitiesPayment
                      of fnancing costs
                  
                  
                  (1,578,414
                  )Proceeds
                      from mortgage note payable
                  
                  
                  110,847,201Contributions
                      from Members
                  
                  
                  27,649,852Net
                      cash provided by financing activities
                  
                  
                  136,918,639Net
                      increase in cash
                  
                  
                  1,986,588Cash
                      at beginning of period
                  
                  
                  -Cash
                      at end of period
                  
                  $
                  1,986,588Supplemental
                      disclosure of cash flow informationCash
                      paid for interest
                  
                  $
                  8,589,861
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  -5-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
  Note
                  1 -
              Formation
                  and Organization of the
                  Company




On
      January 4, 2007, 1407 Broadway Real Estate LLC (“NY Owner”), an indirect, wholly
      owned subsidiary of 1407 Broadway Mezz II LLC (“Mezz II”), consummated the
      acquisition of a sub-leasehold interest in an office building located at 1407
      Broadway, New York, New York (the “NY Property”). Mezz II is a joint venture
      between LVP 1407 Broadway LLC (“LVP LLC”), a wholly owned subsidiary of the
      operating partnership of Lightstone Value Plus Real Estate Investment Trust,
      Inc., and Lightstone 1407 Manager LLC (“Manager”), which is wholly-owned by
      David Lichtenstein, member, and Shifra Lichtenstein, his wife.




The
      Lightstone Value Plus Real Estate Investment Trust, Inc. is managed by
      Lightstone Value Plus REIT, LLC (the "Advisor"), an affiliate of the Lightstone
      Group (the "Sponsor"), under the terms and conditions of an advisory agreement.
      The Sponsor and Advisor are owned and controlled by David Lichtenstein, the
      Chairman of the Lightstone Value Plus Real Estate Investment Trust, Inc. board
      of directors and its Chief Executive Officer.




Mezz
      II
      (the “Company”) is a Delaware limited liability company that through NY Owner
      owns, leases and operates a 42-story office building containing approximately
      914,762 square feet located in New York, New York (the “Property”). ****




Under
      the
      terms of the Contribution Agreement, 51.0% of the Company is owned by Lightstone
      1407 Manager LLC and 49.0% of the Company is owned by LVP 1407 Broadway LLC
      (collectively, the “Members”).




The
      Operating Agreement provides that additional capital contributions, allocations
      of profit and loss, and distributions to members are generally made in
      accordance with each member’s percentage interest in the Company.




In
      accordance with the Operating Agreement, the Company has perpetual existence
      unless sooner dissolved upon the occurrence of a defined termination event.
      No
      member can transfer its interest in any part of the Company without obtaining
      the prior written consent of the other member.




Note
                2 -
            Summary
                of Significant Accounting
                Policies





Basis
      of Presentation




The
      consolidated financial statements include the accounts of the Company and its
      subsidiaries over which the Company exercises financial and operating control. All
      inter-company balances and transactions have been eliminated in consolidation.




-6-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)





The
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America (GAAP).
      GAAP requires the Company’s management to make estimates and assumptions that
      affect the reported amounts of assets and liabilities, the disclosure of
      contingent assets and liabilities and the reported amounts of revenues and
      expenses during a reporting period. The most significant assumptions and
      estimates relate to the valuation of real estate, depreciable lives, revenue
      recognition, the collectability of tenant accounts receivable and the
      realizability of deferred tax assets. Application of these assumptions requires
      the exercise of judgment as to future uncertainties and, as a result, actual
      results could differ from these estimates.





Investment
      in Real Estate




*Accounting
      for Acquisitions*




The
      Company accounts for acquisitions of Properties in accordance with SFAS No.
      141,
“Business Combinations” (“SFAS No. 141”). The fair value of the real estate
      acquired is allocated to the acquired tangible assets, consisting of land,
      building and tenant improvements, and identified intangible assets and
      liabilities, consisting of the value of above-market and below-market leases
      for
      acquired in-place leases and the value of tenant relationships, based in each
      case on their fair values. Purchase accounting is applied to assets and
      liabilities related to real estate entities acquired based upon the percentage
      of interest acquired. Fees incurred related to acquisitions are generally
      capitalized.




Upon
      the
      acquisition of real estate operating properties, the Company estimates the
      fair
      value of acquired tangible assets (consisting of land, building and
      improvements) and identified intangible assets and liabilities (consisting
      of
      above and below-market leases, in-place leases and tenant relationships), and
      assumed debt in accordance with SFAS No. 141, at the date of acquisition,
      based on evaluation of information and estimates available at that date. Based
      on these estimates, the Company allocates the initial purchase price to the
      applicable assets and liabilities. As final information regarding fair value
      of
      the assets acquired and liabilities assumed is received and estimates are
      refined, appropriate adjustments are made to the purchase price allocation.
      The
      allocations are finalized within twelve months of the acquisition
      date.





In
      determining the fair value of the identified intangible assets and liabilities
      of an acquired property, above-market and below-market in-place lease values
      are
      recorded based on the present value (using an interest rate which 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)
      management’s estimate of fair market lease rates for the corresponding in-place
      leases, measured over a period equal to the remaining non-cancelable term of
      the
      lease. The capitalized above- market
      lease values and the capitalized below-market lease values are amortized as
      an
      adjustment to rental income over the initial non-cancelable lease
      term.




-7-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)




The
      aggregate value of in-place leases is determined by evaluating various factors,
      including an estimate of carrying costs during the expected lease-up periods,
      current market conditions and similar leases. In estimating carrying costs,
      management includes real estate taxes, insurance and other operating expenses,
      and estimates of lost rental revenue during the expected lease-up periods based
      on current market demand. Management also estimates costs to execute similar
      leases including leasing commissions, legal and other related costs. The value
      assigned to this intangible asset is amortized over the remaining lease terms
      ranging from one month to approximately 10 years. Optional renewal periods
      are
      not considered.





The
      aggregate value of other acquired intangible assets includes tenant
      relationships. Factors considered by management in assigning a value to these
      relationships include: assumptions of probability of lease renewals, investment
      in tenant improvements, leasing commissions and an approximate time lapse in
      rental income while a new tenant is located. The value assigned to this
      intangible asset is amortized over the remaining lease terms ranging from one
      month to approximately 10 years.




*Carrying
      Value of Assets*




The
      amounts to be capitalized as a result of periodic improvements and additions
      to
      real estate property, and the periods over which the assets are depreciated
      or
      amortized, are determined based on the application of accounting standards
      that
      may require estimates as to fair value and the allocation of various costs
      to
      the individual assets. Differences in the amount attributed to the assets can
      be
      significant based upon the assumptions made in calculating these
      estimates.




*Impairment
      Evaluation*




Management
      evaluates the recoverability of its investment in real estate assets in
      accordance with Statement of Financial Accounting Standard No. 144, “Accounting
      for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). This
      statement requires that long-lived assets be reviewed for impairment whenever
      events or changes in circumstances indicate that recoverability of the asset
      is
      not assured.




The
      Company evaluates the long-lived assets, in accordance with SFAS No. 144 on
      a
      quarterly basis and will record an impairment charge when there is an indicator
      of


impairment
      and the undiscounted projected cash flows are less than the carrying amount
      for
      a particular property. Management concluded no impairment adjustment was
      required through December 31, 2007. The estimated cash flows used for the
      impairment analysis and the determination of estimated fair value are based
      on
      the Company’s plans for the respective assets and the Company’s views of market
      and economic conditions. The estimates consider matters such as current and
      historical rental rates, occupancies for the respective Properties and
      comparable properties, and recent sales data for comparable properties. Changes
      in estimated future cash flows due to changes in the Company’s plans or views of
      market and economic conditions could result in recognition of impairment losses,
      which, under the applicable accounting guidance, could be
      substantial.




-8-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)


Real
      Estate




Real
      estate is carried at depreciated cost. Expenditures for ordinary maintenance
      and
      repairs are expensed to operations as incurred. Significant renovations and
      improvements, which improve and/or extend the useful life of the asset are
      capitalized and depreciated over their estimated useful life.





Depreciation
      and amortization are calculated on the straight-line method over the estimated
      useful lives of assets, which are as follows:





Asset
                Description
            
            LifeBuilding
            
            39
                yearsBuilding
                improvements
            
            10
                to 30 yearsTenants
                improvements
            
            Term
                of related leaseIn-place
                lease intangibles
            
            Term
                of related leaseAbove/below-market
                lease intangibles
            
            Term
                of related lease





Restricted
                Cash Escrows





Restricted
      cash consists primarily of tenant security deposits, as well as cash held for
      real estate taxes and building improvements as required by the loan
      agreement.





Accounts
                Receivable and Allowance for Doubtful
                Accounts




The
      liquidity and creditworthiness of the tenants are monitored on an ongoing basis.
      Allowances for doubtful accounts are maintained using the specific
      identification method for estimated losses resulting from the inability of
      certain tenants to make payments required by the terms of their respective
      leases. No general reserve is recorded. If the financial condition of the
      tenants were to deteriorate, additional allowances may be required.





Deferred
      Costs




Costs
      incurred in connection with financings or debt modifications are capitalized
      as
      deferred financing costs and are amortized on the straight-line method over
      the
      terms of the related loans. Leasing commissions and other leasing costs directly attributable
      to tenant leases are capitalized as deferred leasing costs and are amortized
      on
      the straight-line method over the terms of the related lease
      agreements.




-9-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)


Intangible
                Assets




In
      determining the fair value of the identified intangible assets and liabilities
      of the Property, above-market and below-market in-place lease values are
      recorded based on the present value (using an interest rate which reflects
      the
      risks associated with the leases acquired) of the difference between (1) the
      contractual amounts to be paid pursuant to the in-place leases and (2) the
      estimate of fair market lease rates for the corresponding in-place leases,
      measured over a period equal to the remaining non-cancelable term of the lease.
      The capitalized above-market lease values and the capitalized below-market
      lease
      values are amortized as an adjustment to rental income over the remaining lease
      term.





The
      aggregate value of in-place leases is determined by evaluating various factors,
      including an estimate of carrying costs during the expected lease-up periods,
      current market conditions and similar leases. In estimating carrying costs,
      real
      estate taxes, insurance and other operating expenses and estimates of lost
      rental revenue during the expected lease-up periods based on current market
      demand are included. Costs to execute similar leases, including leasing
      commissions, legal and other related costs, are also estimated. The in-place
      lease value is amortized over the remaining lease term.





The
      above-market lease and below-market lease values are amortized as an adjustment
      to rental income over the remaining lease term while in-place lease values
      are
      amortized to expense over the remaining lease term.





Interest
      Rate Protection Agreement





In
      the
      normal course of business, the Company is exposed to the effect of interest
      rate
      changes. The Company limits these risks by following established risk management
      policies and procedures including the use of derivatives. The Company requires
      that hedging derivative instruments be effective in reducing the interest rate
      risk exposure that they are designated to hedge. This effectiveness is essential
      for qualifying for hedge accounting. Instruments that meet these hedging
      criteria are formally designated as hedges at the inception of the derivative
      contract.





The
      Company has a policy of only entering into derivative contracts with major
      financial institutions based upon their credit ratings and other factors. When
      viewed in conjunction with the underlying and offsetting exposure that the
      derivatives are designed to hedge, the Company has not sustained a material
      loss
      from its derivative instrument nor does it anticipate any material adverse
      effect on its financial position or earnings in the future from the use of
      derivatives. The Company’s interest rate cap hedges the future cash flows on the
      Company’s mortgage note payable and represents a cash flow hedge. If the term of
      the underlying transaction is modified or the underlying hedged item ceases
      to
      exist, all changes in the fair value of the instrument are marked-to-market
      with
      changes in value included in earnings each period until the instrument matures,
      unless the instrument is redesignated as a hedge of another transaction. If
      a
      derivative instrument is terminated or the hedging transaction is no longer
      determined to be effective, amounts held in accumulated other comprehensive
      loss
      are reclassified into earnings over the term of the future cash outflows on
      the
      related underlying transaction. In the future, if the hedging relationship
      is
      not highly effective, then all or a portion of the offsetting gains and losses
      would be reported in earnings. Over time, the unrealized gains and losses held
      in accumulated other comprehensive loss will be reclassified into earnings.
      This
      reclassification is consistent when the hedged items are also recognized into
      earnings.




-10-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)


Rental
      Revenue




Rental
      revenue is recorded on the straight-line method over the terms of the related
      lease agreements. Differences between rental revenue earned and amounts due
      per
      the respective lease agreements are credited or charged, as applicable, to
      accrued straight-lined rent. Rental payments received prior to their recognition
      as income are classified as deferred rental income.





Lease
      incentives, which may include cash payments to or on behalf of tenants, the
      buyout of a prospective tenant’s existing lease or the funding of an improvement
      that is owned by the tenant are amortized as a reduction to rental revenue
      on a
      straight-line basis over the lease term.





Tenant
                Reimbursements





Estimates
      are used to record cost reimbursements from tenants for real estate taxes and
      operating expenses. Revenue is recognized based upon the amounts to be
      reimbursed from our tenants in the same period these reimbursable expenses
      are
      incurred. Differences between estimated recoveries and final amounts billed
      are
      recognized in the subsequent year. Leases are not uniform in dealing with such
      cost reimbursements and variations exist in computations between tenants.
      Adjustments are also made throughout the year to these receivables and the
      related cost recovery income based upon the best estimate of the final amounts
      to be billed and collected. The balance of the estimated accounts receivable
      for
      real estate taxes and operating expenses is also analyzed by comparing actual
      recoveries versus actual expenses.





Income
                Taxes




The
      Company is a limited liability company that has elected to be taxed as a
      partnership for Federal income tax purposes. Accordingly, Federal and state
      taxable income is reportable on the income tax return of the Members. As a
      result of the entity being taxed as a partnership, there is no federal or state
      income tax provision.


Concentration
        of Risk





The
                Company maintains its cash in bank deposit accounts, which, at times,
                may
                exceed federally insured limits. The Company has not experienced
                any
                losses in such accounts. The Company believes it is not exposed to
                any
                significant credit risk on cash.





-11-




1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)




New
      Accounting Pronouncements




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities Including an Amendment of FASB
      Statement No. 115” (“SFAS No. 159”). This standard permits entities to choose to
      measure many financial instruments and certain other items at fair value and
      is
      effective for the first fiscal year beginning after November 15, 2007. The
      Company does not expect SFAS No. 159 to have a material impact on its financial
      statements.




In
                September 2006, the FASB issued SFAS No. 157,*Fair
                Value Measurements*.
                This Statement applies under other accounting pronouncements that
                require
                or permit fair value measurements. Accordingly, this Statement does
                not
                require any new fair value measurements. However, for some entities,
                the
                application of this Statement will change current practice. This
                Statement
                clarifies that market participant assumptions include assumptions
                about
                risk, for example, the risk inherent in a particular valuation technique
                used to measure fair value (such as a pricing model) and/or risk
                inherent
                in the inputs to the valuation technique. This Statement clarifies
                that
                market participant assumptions also include assumptions about the
                effect
                of a restriction on the sale or use of an asset. This Statement also
                clarifies that a fair value measurement for a liability reflects
                its
                nonperformance risk. The statement is effective in the fiscal first
                quarter of 2008 except for non-financial assets and liabilities recognized
                or disclosed at fair value on a recurring basis, for which the effective
                date is fiscal years beginning after November 15, 2008. The Company
                is currently evaluating the impact that the adoption of SFAS No.
                157, but
                does not expect the adoption of SFAS No. 157 will have a material
                effect
                on the Company’s consolidated financial
                statements.





In
      June
      2007, the AICPA issued Statement of Position (“SOP”) 07-1, “Clarification of the
      Scope of the Audit and Accounting Guide, Investment Companies and Accounting
      by
      Parent Companies and Equity Method Investors for Investments in Investment
      Companies.” SOP 07-1 provides guidance for determining whether an entity is
      within the scope of the AICPA Audit and Accounting Guide, “Investment Companies”
(the “Guide”) and when companies that own or have significant stakes in
      investment companies should and should not retain, in their financial
      statements, the specialized industry accounting under the Guide. Management
      does
      not anticipate, the application of SOP 07-1 will have a material impact on
      our
      consolidated financial statements. This statement is effective for financial
      statements issued for fiscal years beginning after December 15, 2007, and
      interim periods within those fiscal years.





In
      December 2007, the FASB issued FASB No. 141(R) which establishes principles
      and requirements for how the acquirer shall recognize and measure in its
      financial statements the identifiable assets acquired, liabilities assumed,
      any
      noncontrolling interest in the acquiree and goodwill acquired in a business
      combination. This statement is effective for business combinations for which
      the
      acquisition date is on or after the beginning of the first annual reporting
      period beginning on or after December 15, 2008.





In
      December 2007, the FASB issued No. 160, which establishes and expands accounting
      and reporting standards for minority interests, which will be recharacterized
      as
      noncontrolling interests, in a subsidiary and the deconsolidation of a
      subsidiary. FASB 160 is effective for business combinations for which the
      acquisition date is on or after the beginning of the first annual reporting
      period beginning on or after December 15, 2008. This statement is effective
      for fiscal years beginning on or after December 15, 2008.  The Company
      is currently assessing the potential impact that the adoption of FASB No. 160
      will have on its financial position and results of operations.




-12-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)


Note
                3 -
            Acquisition





On
      January 4, 2007, the Company, through NY Owner, acquired a sub-leasehold
      interest in a ground lease to an office building located at 1407 Broadway,
      New
      York, New York (the “Sublease Interest”). The seller of the Sublease Interest,
      Gettinger Associates, L.P., is not an affiliate of the Company, its Members
      or
      its subsidiaries. The property, a 42 story office building built in 1952, fronts
      on Broadway, 7th Avenue and 39th Street in midtown Manhattan. The property
      has
      approximately 915,000 leasable square feet, and as of the acquisition date,
      was 87.6% occupied (approximately 300 tenants) and leased by tenants
      generally engaged in the female apparel business. The ground lease, dated as
      of
      January 14, 1954, provides for multiple renewal rights, with the last renewal
      period expiring on December 31, 2048. The Sublease Interest runs concurrently
      with this ground lease.





The
      acquisition price for the Sublease Interest was $122 million, exclusive of
      acquisition-related costs incurred by the Joint Venture ($3.5 million), pro
      rated operating expenses paid at closing ($4.1 million), financing-related
      costs
      ($1.9 million) and construction, insurance and tax reserves ($1.0 million).
      The
      acquisition was funded through a combination of $26.5 million of capital and
      a
      $106.0 million advance on a $127.3 million variable rate mortgage loan funded
      by
      Lehman Brothers Holding, Inc. As an inducement to Lender to make the loan,
      Owner
      has agreed to provide Lender with a 35% net profit interest in the project,
      which is contingent upon a capital transaction, as defined as any transaction
      involving the sale, assignment, transfer, liquidation, condemnation or
      settlement in lieu thereof, disposition, financing, refinancing or any other
      conversion to cash of all or any portion of the property or equity or membership
      interests in Borrower, directly, other
      than the leasing of space for occupancy and/or any other transaction with
      respect to the Property or the direct or indirect ownership interests in
      Borrower outside the ordinary course of business.   To date, the lender did
      not share in any net profits of the project. The lender also has a conversion
      option, which if upon exercised, would grant the lender a special membership
      interest in the Joint Venture whereby the lender will receive 35% of all
      distributions resulting from a capital transaction after the return of the
      member’s equity investment plus the member’s allowed return’s as specified in
      the “Net Profits Agreement”.


-13-


1407
      BROADWAY MEZZ II LLC and SUBSIDIARIES


Notes
      to
      the consolidated financial statements


For
      the
      period January 4, 2007 (date of inception) through December 31, 2007
      (continued)




The
      Company plans to continue an ongoing renovation project at the property
      that consists of lobby, elevator and window redevelopment projects. Additional
      loan proceeds of up to $16.4 million are available to fund these improvements.





Note
              4 -
            Intangible
                Assets





Intangible
      assets consist of the following at December 31, 2007:


Carrying
              
              Accumulated
              
              CarryingIntangible
                  asset category
              
              amount
                  gross
              
              amortization
              
              Amount
                  -netIn-place
                  lease intangibles
              
              $
              14,051,029
              
              $
              (7,159,460
              )
              $
              6,891,569Above-market
                  lease intangibles
              
              
              3,453,192
              
              
              (1,335,085
              )
              
              2,118,107Below-market
                  lease intangibles
              
              
              (6,402,569
              )
              
              1,526,150
              
              
              (4,876,419
              )$
              11,101,652
              
              $
              (6,968,395
              )
              $
              4,133,257




Actual
      amortization for period January 4, 2007 (date of inception) through December
      31,
      2007 was:





In-place
                lease intangibles
            
            $
            7,159,460Above-market
                lease intangibles
            
            
            1,335,085Below-market
                lease intangibles
            
            
            (1,526,150
            )$
            6,968,395




-14-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)


Estimated
                amortization for each of the next five fiscal years is as
                follows:





In-place
            
            Above-market
            
            Below-marketYear
                ending December 31,
            
            lease
              intangibles
            
            lease
              intangibles
            
            lease
              intangibles2008
            
            $
            3,673,004
            
            $
            871,399
            
            $
            (1,173,213
            )2009
            
            
            1,728,313
            
            
            581,428
            
            
            (802,917
            )2010
            
            
            710,810
            
            
            278,326
            
            
            (782,827
            )2011
            
            
            320,309
            
            
            144,355
            
            
            (593,966
            )2012
            
            
            152,823
            
            
            77,661
            
            
            (481,110
            )





Note
                5 -
            Deferred
                Costs





Deferred
      costs consist of the following at December 31, 2007:





Leasing
                costs
            
            $
            3,770,915Financing
                fees
            
            
            1,578,414Less
                accumulated amortization
            
            
            (2,029,572
            )$
            3,319,757


Estimated
                  amortization for each of the next five fiscal years is as
                  follows:Year
                  ending December 31,
              
              
              Leasing
                costs
              
              
              Financing
                fees2008
              
              $
              1,053,947
              
              $
              554,5582009
              
              
              612,385
              
              
              554,5582010
              
              
              295,881
              
              
              -2011
              
              
              138,244
              
              
              -2012
              
              
              41,266
              
              
              -Thereafter
              
              
              68,918
              
              
              -$
              2,210,641
              
              $
              1,109,116





Amortization
      expense for the period January 4, 2007 through December 31, 2007 was $2,029,572,
      of which $469,297 related to the financing fees and is included in interest
      expense on the consolidated statement of operations, and $1,560,275 related
      to
      leasing costs which is included in depreciation and amortization on the
      consolidated statement of operations for the period January 4, 2007 (date of
      inception) through December 31, 2007 .




-15-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)


Note
                6 -
            Mortgage
                Note Payable


On
                January 4, 2007, the Company obtained a loan in the maximum aggregate
                principal amount of $127,250,000 secured by a first mortgage encumbering
                the Property; provided, however, that at closing, the lender shall
                only
                disburse to the Company an amount equal to $106,000,000. The loan
                is
                collateralized by the Property and is subject to various covenants,
                including maintaining a cash escrow account for the payment of real
                estate
                taxes. The loan bears interest at various LIBOR rates, as defined
                (5.03%
                at December 31, 2007), plus 3.00% (the “Applicable Interest Rate”)
                totaling 8.03% at December 31, 2007, with monthly payments of interest
                only through maturity on January 9, 2010. The agreement also required
                the Company to obtain an interest rate cap of LIBOR at 6.5% for the
                term
                of the loan. At closing, the Company paid the lender a financing
                fee of
                1.2% of the principal amount of the loan. The loan has two one-year
                extension options exercisable for a fee of 0.125% of the amount of
                the
                respective loan for each extension. In conjunction with the extension
                options, the Company must also secure an interest rate cap of LIBOR
                at
                6.5%. Due to the fact that interest rates during 2007 were below
                the 6.5%
                interest rate cap, the interest rate cap had a zero
                value.





Upon
      the
      Company’s request and upon submission of a capital improvements budget (the
“Budget”) to the lender, lender shall advance funds equal to 85% of the line
      item cost set forth in the Budget and in the aggregate not to exceed $21,250,000
      (the “Future Fundings”) for (i) tenant improvements and leasing commissions
      associated with new leases and (ii) capital improvements at the property
      approved by the lender. Any disbursements from the Future Fundings shall be
      added to the outstanding principal balance of the loan and shall bear interest
      at the Applicable Interest Rate. Interest at the Applicable Interest Rate will
      be charged on any disbursed portion of the Future Fundings as and when advanced,
      but interest will not be charged on the undisbursed portion of the Future
      Fundings. The Future Fundings for the twelve months ended December 31, 2007,
      totaled $4,847,201, bringing the December 31, 2007 balance of the loan to
      $110,847,201.





The
      Company shall pay an administrative fee to the lender in the amount of $20,000
      per annum, which is payable quarterly in equal installments on the first day
      of
      January, April, July and October of each year. This $20,000 expense for the
      period January 4, 2007 (date of inception) through December 31, 2007 is included
      in interest expense in the statement of operations.





Lightstone
      Holdings, LLC, an affiliate of Lightstone Group LLC (“Lightstone”), has
      guaranteed the principal amount of the loan.





The
      above
      loan agreements include various covenants. As of December 31, 2007, the Company
      is in compliance with the requirements of all financial covenants.




-16-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)


For
      the
      period January 4, 2007 (date of inception) through December 31, 2007, the
      Company incurred interest expense totaling $9,021,279, including the
      adminstrative fee discussed above.





Note
                7 -
            Related-Party
                Transactions


Effective
      January 4, 2007, the Company engaged PGRS 1407 BWAY LLC (the “Advisor”) to
      provide asset management, development and related advisory services in
      connection with the management, marketing, leasing, operating and redevelopment
      of the Property. The Advisor is entitled to receive fees (the “Advisor Fees”) in
      an amount equal to $500,000 per year for services performed on behalf of the
      Company. The Advisor Fees shall increase by 3.5% of the prior year’s fees on
      each anniversary of the date of the agreement.





In
      addition, in connection with any capital improvements to the Property relating
      to any redevelopment of the Property, Advisor shall be entitled to a fee (the
      “Redevelopment Fees”) of 2.5% of all hard and soft costs for capital
      improvements to the Property.





The
      Advisor is a subsidiary of Prime Group Realty, L.P. (“PGRLP”), which was
      acquired by Lightstone on July 1, 2005. As a result, Prime Office Company,
      LLC,
      a subsidiary of Lightstone, owned 100.0% of the common shares and 99.1% of
      the
      common units in PGRLP.





Amounts
      incurred for period January 4, 2007 (date of inception) through December 31,
      2007, are summarized as follows:





Advisor
                Fees (1)
            
            $
            500,000Redevelopment
                Fees (2)
            
            $
            119,225





(1)  Included
      in property operations on the statement of operations.





(2)  Included
      in building and improvements on the balance sheet.





Included
      in Accounts payable and accrued liabilities on the consolidated balance sheet
      is
      a due to affiliate balance in the amount of $922,138. This amount was advanced
      from Lightstone to reimburse operating expenses, which were paid by Lightstone
      Group LLC, on behalf of the Company, in December 2007 and subsequently repaid
      in
      January 2008.





Note
                8 -
            Leases


The
      Company has entered into lease agreements with tenants with lease terms ranging
      from 1 to 15 years at lease inception. The leases generally provide for tenants
      to share in increases in operating expenses and real estate taxes in excess
      of
      specified base amounts.




-17-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)




The
                total future minimum rental to be received under such non-cancelable
                operating leases executed at December 31, 2007, exclusive of tenant
                reimbursements and contingent rentals, are as
                follows:





Year
                ending December 31,2008
            
            $
            32,873,8872009
            
            
            23,200,5502010
            
            
            14,341,4922011
            
            
            7,951,0012012
            
            
            4,315,454Thereafter
            
            
            2,694,521Total
            
            $
            85,376,905





Note
                9 -
            Fair
                Values of Financial Instruments


SFAS
                No. 107, “*Disclosures
                About Fair Value of Financial Instruments*,”
                and SFAS No. 119, “*Disclosure
                About Derivative Financial Instruments and Fair Value of Financial
                Instruments*,”
                require disclosure of the fair value of certain on- and off-balance-sheet
                financial instruments for which it is practicable to estimate. Fair
                value
                is defined by SFAS No. 107 as the amount at which the instrument
                could be
                exchanged in a current transaction between willing parties other
                than in a
                forced or liquidation sale.





The
      carrying amounts of cash and cash equivalents, restricted cash escrows, accounts
      receivable and accounts payable approximate their fair values because of the
      short maturity of these instruments. The carrying amount of the Company’s
      variable rate debt (including accrued interest) approximates fair value. The
      fair value of the mortgage note payable was determined by discounting the future
      contractual interest and principal payments by a market rate.





Note
              10 -
            Commitments
                and Contingencies





Legal
                Proceedings





From
      time
      to time in the ordinary course of business, the Company may become subject
      to
      legal proceedings, claims or disputes.





On
      January 4, 2007, 1407 Broadway Real Estate LLC ("Office Owner"), an indirect,
      wholly owned subsidiary of the Company, consummated the acquisition of a
      sub-leasehold interest (the "Sublease Interest") in an office building located
      at 1407 Broadway, New York, New York (the "Office Property"). The Company is
      a
      joint venture between LVP 1407 Broadway LLC ("LVP LLC"), and Lightstone 1407
      Manager LLC ("Manager"), which is wholly owned by David Lichtenstein, member,
      and Shifra Lichtenstein, his wife.




-18-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)




The
      Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold
      Agreement with Gettinger Associates, L.P. ("Gettinger"). In July 2006, Abraham
      Kamber Company, as sublessor under the sublease ("Sublessor"), served two
      notices of default on Gettinger (the "Default Notices"). The first alleged
      that
      Gettinger had failed to satisfy its obligations in performing certain
      renovations and the second asserted numerous defaults relating to Gettinger's
      purported failure to maintain the Office Property in compliance with its
      contractual obligations.





In
      response to the Default Notices, Gettinger commenced legal action and obtained
      an injunction that extends its time to cure any default, prohibits interference
      with its leasehold interest and prohibits Sublessor from terminating its
      sublease pending resolution of the litigation. A motion by Sublessor for partial
      summary judgment, alleging that certain work on the Office Property required
      its
      prior approval, was denied by the Supreme Court, New York County. Subsequently,
      by agreement of the parties, a stay was entered precluding the termination
      of
      the Sublease Interest pending a final decision on Sublessor's claim of defaults
      under the Sublease Interest. In addition, the parties stipulated to the
      intervention of Office Owner as a party to the proceedings. The parties have
      been directed to engage in and complete discovery. We consider the litigation
      to
      be without merit.




Prior
      to
      consummating the acquisition of the Sublease Interest, Office Owner received
      a
      letter from Sublessor indicating that Sublessor would consider such acquisition
      a default under the original sublease, which prohibits assignments of the
      Sublease Interest when there is an outstanding default there under. On February
      16, 2007, Office Owner received a Notice to Cure from Sublessor stating the
      transfer of the Sublease Interest occurred in violation of the Sublease given
      Sublessor's position that Office Seller is in default. Office Owner will
      commence and vigorously pursue litigation in order to challenge the default,
      receive an injunction and toll the termination period provided for in the
      Sublease.





On
      September 4, 2007, Office Owner commenced a new action against Sublessor
      alleging a number claims, including the claims that Sublessor has breached
      the
      sublease and committed intentional torts against Office Owner by (among other
      things) issuing multiple groundless default notices, with the aim of prematurely
      terminating the sublease and depriving Office Owner of its valuable interest
      in
      the sublease.  The complaint seeks a declaratory judgment that Office Owner
      has not defaulted under the sublease, damages for the losses Office Owner has
      incurred as a result of Sublessor’s wrongful conduct, and an injunction to
      prevent Sublessor from issuing further default notices without valid grounds
      or
      in bad faith.




-19-


1407
        BROADWAY MEZZ II LLC and SUBSIDIARIES
 Notes
        to
        the consolidated financial statements
 For
        the
        period January 4, 2007 (date of inception) through December 31, 2007
        (continued)


As
      of the
      date hereof, we are not a party to any other material pending legal
      proceedings.




Operating
      Leases


The
        Company, through NY Owner, acquired a sub-leasehold interest in a ground
        lease
        on January 4, 2007, (as discussed in Note 3) for annual rent of $7,500,000
        through 2030, which provides for multiple renewal rights, with the last renewal
        period expiring on December 31, 2048. The rent expense under this lease for
        period January 4, 2007 through December 31, 2007 was approximately $7,500,000,
        included in property operating expenses on the consolidated statement of
        operations.
 
 Future
        minimum rental commitments under noncancelable operating leases, excluding
        the
        renewal period, are as follows:


Year
                ending December 31,2008
            
            $
            7,500,0002009
            
            
            7,500,0002010
            
            
            7,500,0002011
            
            
            7,500,0002012
            
            
            7,500,000Thereafter
            
            
            134,375,000




-20-