**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**FORM
      10-K**





x Annual
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934





**For
      The Fiscal Year Ended December 31, 2005**




or




o Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934





For
      the
      transition period from ____________ to ____________




**Commission
      file number 333-117367**




**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.**


(Exact
      Name of Registrant as Specified in Its Charter)





Maryland
            20-1237795(State
                or other jurisdiction
            (I.R.S.
                Employer Identification No.)of
                incorporation or organization)





326
                Third Street, Lakewood, NJ
            08701(Address
                of principal executive offices)
            (Zip
                code)





Registrant's
      telephone number, including area code:  732-367-0129




Securities
      registered under Section 12(b) of the Exchange Act:




**Title of
                Each Class******
            
            **Name
                of Each Exchange on Which Registered********None**
            
            **None**





Securities
      registered under Section 12(g) of the Exchange Act:




**None**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  Yes o No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.  Yes o No  x





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.    Yes  x  No  o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
      Exchange Act).  Large accelerated filer  o Accelerated
      filer  o  Non-accelerated
      filer  x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  o **** No  x





As
      of
      June 30, 2005, the aggregate market value of the common shares held by
      non-affiliates of the registrant was $0. While there is no established market
      for the Registrant’s common shares, the Registrant is offering and has sold its
      common shares pursuant to a Form S-11 Registration Statement under the
      Securities Act of 1933 at a price of $10.00 per common share. As of
      March 27, 2006, there were 462,616 shares of common stock held by
      non-affiliates of the registrant.





**DOCUMENTS
      INCORPORATED BY REFERENCE**


None.





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.**


**Table
      of Contents**




**Page****PART I**Item 1.
            
            Business
            
            **4**Item
                1A.
            
            Risk
                Factors
            
            **8**Item
                1B.
            
            Unresolved
                Staff Comments
            
            **27**Item
                2.
            
            Properties
            
            **27**Item
                3.
            
            Legal
                Proceedings
            
            **27**Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            **27****PART II**Item 5.
            
            Market
                for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
                Purchases of Equity Securities
            
            **28**Item 6.
            
            Selected
                Financial Data
            
            **30**Item 7.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            **30**Item
                7A.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            **38**Item
                8.
            
            Financial
                Statements and Supplementary Data
            
            **39**Item
                9.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            **56**Item
                9A.
            
            Controls
                and Procedures
            
            **56**Item
                9B.
            
            Other
                Information
            
            **56****PART
                III**Item 10.
            
            Directors
                and Executive Officers of the Registrant
            
            **57**Item
                11.
            
            Executive
                Compensation
            
            **60**Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            **60**Item
                13.
            
            Certain
                Relationships and Related Transactions
            
            **62**Item
                14.
            
            Principal
                Accounting Fees and Services
            
            **63****PART
                IV**Item 15.
            
            Exhibits
                and Financial Statement Schedules
            
            **64**Signatures
            
            **65**





2


**Special
      Note Regarding Forward-Looking Statements**




Certain
      information included in this Annual Report on Form 10-K contains, and other
      materials filed or to be filed by us with the Securities and Exchange
      Commission, or the SEC, contain or will contain, forward-looking statements.
      All
      statements, other than statements of historical facts, including, among others,
      statements regarding our possible or assumed future results of our business,
      financial condition, liquidity, results of operations, plans and objectives,
      are
      forward-looking statements. Those statements include statements regarding the
      intent, belief or current expectations of Lightstone Value Plus Real Estate
      Investment Trust, Inc. and members of our management team, as well as the
      assumptions on which such statements are based, and generally are identified
      by
      the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,”
“estimates,” “expects,” “plans,” “intends,” “should,” “would,” “could” or
      similar expressions. Forward-looking statements are not guarantees of future
      performance and involve risks and uncertainties that actual results may differ
      materially from those contemplated by such forward-looking statements.




We
      believe these forward-looking statements are reasonable; however, undue reliance
      should not be placed on any forward-looking statements, which are based on
      current expectations. All written and oral forward-looking statements
      attributable to us, or persons acting on our behalf, are qualified in their
      entirety by these cautionary statements. Further, forward-looking statements
      speak only as of the date they are made, and we undertake no obligation to
      update or revise forward-looking statements to reflect changed assumptions,
      the
      occurrence of unanticipated events or changes to future operating results over
      time unless required by law.





All
      forward-looking statements should be read in light of the factors identified
      herein at Part 1, Item 1A as well as in the “Risk Factors” section of the
      Registration Statement on Form S-11 (File No. 333-117367) of Lightstone Value
      Plus Real Estate Investment Trust, Inc. filed with the Securities and Exchange
      Commission (the “SEC”), as the same may be amended and supplemented from time to
      time.





3


**PART I.**


**ITEM
      1. BUSINESS:**





**General
      Description of Business**





Lightstone
      Value Plus Real Estate Investment Trust, Inc. (the “Lightstone REIT”), a
      Maryland corporation, was formed on June 8, 2004 primarily for the purpose of engaging in the business of investing in and owning
      commercial and residential real estate properties located throughout the United
      States and Puerto Rico. The Lightstone REIT intends to acquire
      both portfolios and individual properties, with its commercial holdings expected
      to consist primarily of multi-tenanted shopping centers, industrial and office
      properties, and its residential properties expected to consist of “Class B”
multi-family complexes .





The Lightstone
      REIT is
      structured as an umbrella partnership real estate investment trust, or UPREIT,
      and substantially all of the Lightstone
      REIT ’s
      current and future business is and will be conducted through Lightstone
      Value Plus REIT, L.P., a Delaware limited partnership formed on July
      12,
      2004  (the
      “Operating Partnership”). We
      refer
      to the Lightstone
      REIT and the
      Operating Partnership as the “Company” and the use of “we,” “our,” “us” or
      similar pronouns in this annual report refers to the Lightstone
      REIT ,
      the
      Operating Partnership or the Company as required by the context in which such
      pronoun is used.





Our
      business is managed by Lightstone
      Value Plus REIT, LLC (the “Advisor”) ,
      an
      affiliate of the Lightstone Group (our “Sponsor”), under the terms and
      conditions of an advisory agreement. Our Sponsor and Advisor are owned and
      controlled by David
      Lichtenstein ,
      the
      Chairman of our board of directors. Founded
      in 1988 and headquartered in Lakewood, New Jersey, our Sponsor is ranked among
      the 25 largest real estate companies in the industry with a diversified
      portfolio of over 12,000 residential units as well as office, industrial and
      retail properties totaling in excess of 29 million square feet of space in
      26
      states, the District of Columbia and Puerto Rico. Our
      Sponsor has extensive experience in the areas of investment selection,
      underwriting, due diligence, portfolio management, asset management, property
      management, leasing, disposition, finance, accounting and investor
      relations.





**Operations**





The
      Lightstone REIT intends to sell a maximum of 30,000,000 common shares, at a
      price of $10 per share (exclusive of 4,000,000 shares available pursuant to
      our
      dividend reinvestment plan, 600,000 shares that could be obtained through the
      exercise of selling dealer warrants when and if issued and 75,000 shares that
      are reserved for issuance under our stock option plan). The Lightstone REIT’s
      Registration Statement on Form S-11 (the “Registration Statement”) was declared
      effective under the Securities Act of 1933 on April 22, 2005, and on May
      24,
      2005 ,
      we
      began offering our common shares for sale to the public. Lightstone
      Securities, LLC (the “Dealer Manager”) is serving as the dealer manager of our
      public offering (the “Offering”).





The
      Lightstone REIT sold 20,000 shares to our Advisor on July 6, 2004, for $10
      per
      share. We invested the proceeds from this sale in the Operating Partnership,
      and
      as a result, held a 99.01% limited partnership interest at December 31, 2005
      and
      2004, respectively. Our Advisor also contributed $2,000 to the Operating
      Partnership in exchange for 200 limited partner units in the Operating
      Partnership. The limited partner has the right to convert operating partnership
      units into cash or, at the option of the Company, an equal number of common
      shares of the Lightstone REIT, as allowed by the limited partnership agreement.





A
      Post-Effective Amendment to the Lightstone REIT’s Registration Statement was
      declared effective on October 17, 2005. The Post-Effective Amendment reduced
      our
      minimum offering from 1,000,000 shares of common stock to 200,000 shares of
      common stock. As of December 31,
      2005, w e
      had
      reached our minimum offering by receiving subscriptions for 225,966 of
      our
      common shares, representing gross offering proceeds of $ 2,259,662 .
      On
      February 1, 2006, cumulative gross offering proceeds of $2,731,535 were released
      to us from escrow and the gross proceeds were invested in the Operating
      Partnership.





As
      of
      March 27, 2006, cumulative gross offering proceeds of $4,826,158 have been
      released to us and used for the purchase of a 99.96% limited partnership
      interest in the Operating Partnership. We expect that our ownership percentage
      in the Operating Partnership will remain significant as we plan to continue
      to
      invest all net proceeds from the Offering in the Operating Partnership.


4


**PART
      1, CONTINUED:**


**ITEM
      1. BUSINESS, CONTINUED:**





Lightstone
      SLP, LLC, an affiliate of our Advisor, intends to purchase special general
      partner units in the Operating Partnership at a cost of $100,000 per unit for
      each $1,000,000 in offering subscriptions. Proceeds from the sale of the special
      general partnership interests will be used to reimburse organizational and
      offering costs paid by our Advisor on our behalf.





In
      conjunction with our closing of escrow on February 1, 2006, the Lightstone
      REIT
      offset proceeds of $225,966 from the sale of special general partnership units
      against amounts due to our Advisor. Such offset was in partial satisfaction
      of
      approximately $1.5 million of offering costs incurred by our Advisor on our
      behalf. As of March 27, 2006, cumulative offering costs advanced by our Advisor
      totaled approximately $1.7 million, representing 34.7% of gross offering
      proceeds during the same period. Our Advisor did not allocate any organizational
      costs to the Company as of December 31, 2005. Our Advisor is responsible for
      offering and organizational costs exceeding 10% of the gross offering proceeds
      without recourse to the Company.





As
      of
      March 27, 2006, the Company hasn’t purchased any properties, however we have
      identified the Belz Factory Outlet World in St. Augustine, Florida as our first
      potential acquisition. The $28 million transaction is expected to close by
      April
      2006, but there can be no assurance that this acquisition will be consummated.
      Prime Retail Property Management, LLC, an affiliate of the Lightstone Value
      Plus
      REIT Management LLC, (the “Property Manager”), will serve as our property
      manager.




The
      Company’s Advisor, Property Manager and Dealer Manager are each related parties.
      Each of these entities will receive compensation and fees for services related
      to the offering and for the investment and management of our assets. These
      entities will receive fees during the offering, acquisition, operational and
      liquidation stages. The compensation levels during the offering, acquisition
      and
      operational stages are based on percentages of the offering proceeds sold,
      the
      cost of acquired properties and the annual revenue earned from such properties
      and other such fees outlined in each of the respective agreements.





**Primary
      Investment Objectives**





Our
      primary investment objectives are:




·
            Capital
                appreciation; and





·
            Income
                without subjecting principal to undue
                risk.





**Acquisition
      and Investment Policies** ****





We
      intend
      to acquire fee interests in multi-tenanted, community, power and lifestyle
      shopping centers, and in malls located in highly trafficked retail corridors,
      high-barrier to entry markets, and sub-markets with constraints on the amount
      of
      additional property supply. Additionally, we seek to acquire multi-tenanted
      industrial properties located near major transportation arteries and
      distribution corridors; multi-tenanted office properties located near major
      transportation arteries; and market-rate, middle market multifamily properties
      at a discount to replacement cost. We do not intend to invest in single family
      residential properties; hotels or motels; leisure home sites; farms; ranches;
      timberlands; unimproved properties not intended to be developed; or mining
      properties.





Investments
      in real estate will be made through the purchase of all or part of a fee simple
      ownership, or all or part of a leasehold interest. We may also purchase limited
      partnership interests, limited liability company interests and other equity
      securities. We may also enter into joint ventures with affiliated entities
      for
      the acquisition, development or improvement of properties as well as general
      partnerships, co-tenancies and other participations with real estate developers,
      owners and others for the purpose of developing, owning and operating real
      properties. We will not enter into a joint venture to make an investment that
      we
      would not be permitted to make on our own.





Not
      more
      than 10% of our total assets will be invested in unimproved real property.
      For
      purposes of this paragraph, “unimproved real properties” does not include
      properties acquired for the purpose of producing rental or other operating
      income, properties under construction and properties for which development
      or
      construction is planned within one year. Additionally, we will not invest in
      contracts for the sale of real estate unless in recordable form and
      appropriately recorded.





Although
      we are not limited as to the geographic area where we may conduct our
      operations, we intend to invest in properties located near the existing
      operations of our sponsor, The Lightstone Group, in order to achieve economies
      of scale


5


**PART
      1, CONTINUED:**


**ITEM
      1. BUSINESS, CONTINUED:**





where
      possible. The Lightstone Group currently maintains operations in Alabama,
      California, Connecticut, District of Columbia, Florida, Georgia, Illinois,
      Indiana, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York,
      North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina,
      Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin and Puerto
      Rico.





**Financing
      Strategy and Policies**





We
      intend
      to utilize leverage in acquiring our properties. The number of different
      properties we will acquire will be affected by numerous factors, including,
      the
      amount of funds available to us. When interest rates on mortgage loans are
      high
      or financing is otherwise unavailable on terms that are satisfactory to us,
      we
      may purchase certain properties for cash with the intention of obtaining a
      mortgage loan for a portion of the purchase price at a later time. We intend
      to
      limit our aggregate long-term permanent borrowings to 75% of the aggregate
      fair
      market value of all properties unless any excess borrowing is approved by a
      majority of the independent directors and is disclosed to our stockholders.





We
      may
      finance our property acquisitions through a variety of means, including but
      not
      limited to individual non-recourse mortgages and through the exchange of an
      interest in the property for limited partnership units of the Operating
      Partnership.





The
      Company currently has no debt and has not secured any financing sources.





**Dividend
      Objectives**





Federal
      income tax law requires that a REIT distribute annually at least 90% of its
      REIT
      taxable income (excluding any net capital gains). Distributions will be at
      the
      discretion of the board of directors and will depend upon our distributable
      funds, current and projected cash requirements, tax considerations and other
      factors. We
      intend
      to declare dividends to our shareholders as of daily record dates and aggregate
      and pay such dividends quarterly.





On
      January 26, 2006, our Board of Directors declared a dividend for the two-month
      period ending March 31, 2006. The dividend will be calculated based on
      shareholders of record each day during this two-month period at a rate of
      $0.0019178 per day, and will equal a daily amount that, if paid each day for
      a
      365-day period, would equal a 7.0% annualized rate based on a share price of
      $10.00. The dividend will be paid in cash in April 2006.





**Tax
      Status**





We
      intend
      to qualify as a REIT and to elect to be taxed as a REIT for the taxable year
      ending December 31, 2006, but as of the date of this Annual Report on Form
      10-K,
      we are not qualified as a REIT .
      Once we
      qualify for taxation as a REIT, we generally will not be subject to corporate
      federal income tax to the extent we distribute our taxable income to our
      shareholders. If we fail to qualify as a REIT in any taxable year, we will
      be
      subject to federal income tax at regular corporate rates.




**Competition**





The
      retail, office, industrial and residential real estate markets are highly
      competitive. We will compete in all of our markets with other owners and
      operators of retail, office, industrial and residential real estate. The
      continued development of new retail, office, industrial and residential
      properties has intensified the competition among owners and operators of these
      types of real estate in many market areas in which we intend to operate. We
      will
      compete based on a number of factors that include location, rental rates,
      security, suitability of the property’s design to prospective tenants’ needs and
      the manner in which the property is operated and marketed. The number of
      competing properties in a particular market could have a material effect on
      our
      occupancy levels, rental rates and on the operating expenses of certain of
      our
      properties.




In
      addition, we will compete with other entities engaged in real estate investment
      activities to locate suitable properties to acquire and to locate tenants and
      purchasers for our properties. These competitors will include other REITs,
      specialty finance companies, savings and loan associations, banks, mortgage
      bankers, insurance companies, mutual funds, institutional investors, investment
      banking firms, lenders, governmental bodies and other entities. There are also
      other REITs with asset acquisition objectives similar to ours and others may
      be
      organized in the future. Some of these competitors, including larger REITs,
      have
      substantially greater marketing and financial resources than we will have and
      generally may be able to accept more risk than we can prudently manage,
      including risks with respect to the creditworthiness of tenants. In addition,
      these same entities seek financing through similar channels to our company.
      Therefore, we will compete for institutional investors in a market where funds
      for real estate investment may decrease.


6


**PART
      1, CONTINUED:**


**ITEM
      1. BUSINESS, CONTINUED** :





Competition
      from these and other third party real estate investors may limit the number
      of
      suitable investment opportunities available to us. It may also result in higher
      prices, lower yields and a narrower spread of yields over our borrowing costs,
      making it more difficult for us to acquire new investments on attractive terms.
      In addition, competition for desirable investments could delay the investment
      of
      proceeds from this offering in desirable assets, which may in turn reduce our
      earnings per share and negatively affect our ability to commence or maintain
      distributions to stockholders.




We
      believe that our senior management’s experience, coupled with our financing,
      professionalism, diversity of properties and reputation in the industry will
      enable us to compete with the other real estate investment companies.




Because
      we are organized as an UPREIT, we are well positioned within the industries
      in
      which we intend to operate to offer existing owners the opportunity to
      contribute those properties to our company in tax-deferred transactions using
      our operating partnership units as transactional currency. As a result, we
      have
      a competitive advantage over most of our competitors that are structured as
      traditional REITs and non-REITs in pursuing acquisitions with tax-sensitive
      sellers.





**Environmental**





As
      an
      owner of real estate, we will be subject to various environmental laws of
      federal, state and local governments. Compliance with existing laws has not
      had
      a material adverse effect on our financial condition or results of operations,
      and management does not believe it will have such an impact in the future.
      However, we cannot predict the impact of unforeseen environmental contingencies
      or new or changed laws or regulations on properties in which we hold an
      interest, or on properties that may be acquired directly or indirectly in the
      future.





**Employees**





We
      do not
      have employees. We entered into an advisory agreement with our Advisor on April
      22, 2005, pursuant to which our Advisor supervises and manages our day-to-day
      operations and selects our real estate and real estate related investments,
      subject to oversight by our board of directors. We will pay our Advisor fees
      for
      services related to the investment and management of our assets, and we will
      reimburse our Advisor for certain expenses incurred on our behalf.





**Economic
      Dependence**





We
      are
      dependent upon the net proceeds to be received from the Offering to conduct
      our
      proposed activities. The capital required to purchase real estate and real
      estate related investments will be obtained from the Offering and from any
      indebtedness that we may incur in connection with the acquisition of any real
      estate and real estate related investments thereafter.





**Available
      Information**




Shareholders
      may obtain copies of our filings with the Securities and Exchange Commission,
      or
      SEC, free of charge from the website maintained by the SEC at
      http://www.sec.gov. Our office is located at 326 Third Avenue, Lakewood, NJ
      08701. Our telephone number is 1-866-792-8700. Our web site is
      www.LightstoneREIT.com.


7


**PART
      1, CONTINUED:**


**ITEM
      1. BUSINESS, CONTINUED:**





**ITEM
      1A. RISK FACTORS:**





*Set
      forth below are the risk factors that we believe are material to our investors.
       This section contains forward-looking statements.  You should refer
      to the explanation of the qualifications and limitations on forward-looking
      statements on page 3. If any of the risk events described below actually occurs,
      our business, financial condition or results of operations could be adversely
      affected* *.* **





**Risks
      Related to the Common Stock**





***We
      are a newly formed company with no operating history upon which to evaluate
      our
      likely performance.*** We
      do not
      have an operating history upon which to evaluate our likely performance. We
      may
      not be able to implement our business plan successfully.





***Distributions
      to stockholders may be reduced or not made at all.*** Distributions
      will be based principally on cash available from our properties. The amount
      of
      cash available for distributions will be affected by many factors, such as
      our
      ability to buy properties as offering proceeds become available, the operating
      performance of the properties we acquire and many other variables. We may not
      be
      able to pay or maintain distributions or increase distributions over time.
      Therefore, we cannot determine what amount of cash will be available for
      distributions. Some of the following factors, which we believe are the material
      factors that can affect our ability to make distributions, are beyond our
      control, and a change in any one factor could adversely affect our ability
      to
      pay future distributions:




•
            Cash
                available for distributions may be reduced if we are required to
                make
                capital improvements to properties.




•
            Cash
                available to make distributions may decrease if the assets we acquire
                have
                lower cash flows than expected.




•
            Until
                we invest our offering proceeds in real properties, we may invest
                in lower
                yielding short-term instruments, which could result in a lower yield
                on
                stockholders’ investment.




•
            In
                connection with future property acquisitions, we may issue additional
                shares of common stock and/or operating partnership units or interests
                in
                the entities that own our properties. We cannot predict the number
                of
                shares of common stock, units or interests that we may issue, or
                the
                effect that these additional shares might have on cash available
                for
                distributions to stockholders. If we issue additional shares, that
                issuance could reduce the cash available for distributions to
                stockholders.




•
            We
                make distributions to our stockholders to comply with the distribution
                requirements of the Internal Revenue Code and to eliminate, or at
                least
                minimize, exposure to federal income taxes and the nondeductible
                REIT
                excise tax. Differences in timing between the receipt of income and
                the
                payment of expenses, and the effect of required debt payments, could
                require us to borrow funds on a short-term basis to meet the distribution
                requirements that are necessary to achieve the tax benefits associated
                with qualifying as a REIT.





***Our
      operations could be restricted if we become subject to the Investment Company
      Act of 1940.*** We
      intend
      to conduct our operations so that we will not be subject to regulation under
      the
      Investment Company Act of 1940. We may therefore have to forego certain
      investments that could produce a more favorable return. Should we fail to
      qualify for an exemption from registration under the Investment Company Act
      of
      1940, we would be subject to numerous restrictions under this Act, which would
      have a material adverse affect on our ability to deliver returns to our
      stockholders.




We
      do not
      believe that we or our operating partnership will be considered an “investment
      company” as defined in the Investment Company Act of 1940 because we do not
      intend to engage in the types of business that characterize an investment
      company under that law. Investments in real estate will represent the
      substantial majority of our business, which would not subject us to investment
      company status. While a company that owns investment securities having a value
      exceeding 40 percent of its total assets could be considered an investment
      company, we believe that if we make investments in joint ventures they will
      be
      structured so that they are not considered “investment securities” for purposes
      of the law. However, if an examination of this type of our investments by the
      SEC or a court deem them to be investment securities, we could be deemed to
      be
      an investment company and subject to additional restrictions.


8


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





Even
      if
      we or our operating partnership are deemed an investment company, we may qualify
      for an exemption from the provisions of the Investment Company Act, such as
      the
      exemption that applies generally to companies that purchase or otherwise acquire
      interests in real estate. Under Section 3(c)(5)(C), the Investment Company
      Act
      exempts entities that are primarily engaged in the business of purchasing or
      otherwise acquiring “mortgages and other liens on and interests in real estate.”
The staff of the SEC has provided guidance on the availability of this
      exemption. Specifically, the staff’s position generally requires us to maintain
      at least 55% of our assets directly in qualifying real estate interests
      (“qualifying assets”). To constitute a qualifying real estate interest under
      this 55% requirement, a real estate interest must meet various criteria. We
      intend to invest only in fee or leasehold interests in real estate. Fee
      interests in real estate are considered “qualifying assets” for purposes of
      Section 3(c)(5)(C) of the Investment Company Act and leasehold interests in
      real
      estate may be considered “qualifying assets” for purposes of
      Section 3(c)(5)(C) of the Investment Company Act. We do not intend to
      invest in mezzanine loans, subordinate interests in whole loans (B Notes),
      distressed debt, preferred equity or multi-class (first loss) mortgage-back
      securities. Investments in such assets may not be deemed “qualifying assets” for
      purposes of Section 3(c)(5)(C) of the Investment Company Act and, as a result,
      any such investments may have to be limited. There can be no assurance that
      our
      investments will continue to qualify for an exemption from investment company
      status.




If
      we
      fail to maintain an exemption or exclusion from registration as an investment
      company, we could, among other things, be required either (a) to substantially
      change the manner in which we conduct our operations to avoid being required
      to
      register as an investment company, or (b) to register as an investment company,
      either of which could have an adverse effect on us and the market price of
      our
      common stock. If we were required to register as an investment company under
      the
      Investment Company Act, we would become subject to substantial regulation with
      respect to our capital structure (including our ability to use leverage),
      management, operations, transactions with affiliated persons (as defined in
      the
      Investment Company Act), portfolio composition, including restrictions with
      respect to diversification and industry concentration and other matters.




We
      intend
      to monitor our compliance with the exemptions under the Investment Company
      Act
      on an ongoing basis.





***The
      special general partner interests will entitle Lightstone SLP, LLC, which is
      directly owned and controlled by our sponsor, to certain payments and
      distributions that will significantly reduce the distributions available to
      stockholders after a 7% return.*** Lightstone SLP, LLC will receive returns on its special general partner
      interests that are subordinated to stockholders’ 7% return on their net
      investment. Distributions to stockholders will be reduced after they have
      received this 7% return because of the payments and distributions to Lightstone
      SLP, LLC in connection with its special general partner interests that will
      be
      issued as more proceeds are raised in our offering of common stock. In addition,
      we may eventually repay Lightstone SLP, LLC up to $30,000,000 for its investment
      in the special general partner interests, which will result in a smaller pool
      of
      assets available for distribution to stockholders.





**Conflicts
      of Interest**




***There
      are conflicts of interest between our dealer manager, advisor, property manager
      and their affiliates and us.*** David
      Lichtenstein, our sponsor, founded both American Shelter Corporation and The
      Lightstone Group, LLC in 1988. Mr. Lichtenstein wholly owns The Lightstone
      Group
      and does business in his individual capacity under that name. Through The
      Lightstone Group, Mr. Lichtenstein controls and indirectly owns our advisor,
      our
      property manager, our operating partnership, our dealer manager and affiliates,
      except for us, although he owned over 9% of our shares indirectly through our
      advisor at the time we reached the minimum offering of $2,000,000. [This
      percentage results from dividing 20,000 by the total of 220,000 issued and
      outstanding shares at the time of the minimum.]





Mr.
      Lichtenstein is one of our directors and The Lightstone Group or an affiliated
      entity controlled by Mr. Lichtenstein employs Bruno de Vinck, our other
      non-independent director, and each of our officers. As a result, our operation
      and management may be influenced or affected by conflicts of interest arising
      out of our relationship with our affiliates.




***There
      is competition for the time and services of the personnel of our advisor and
      its
      affiliates.*** Our
      sponsor and its affiliates may compete with us for the time and services of
      the
      personnel of our advisor and its other affiliates in connection with our
      operation and the management of our assets. Specifically, employees of our
      sponsor, the advisor and the property manager will face conflicts of interest
      relating to time management and the allocation of resources and investment
      opportunities.


9


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**




***We
      do not have employees.*** ** Likewise,
      our advisor will rely on the employees of the sponsor and its affiliates to
      manage and operate our business. The sponsor is not restricted from acquiring,
      developing, operating, managing, leasing or selling real estate through entities
      other than us and will continue to be actively involved in operations and
      activities other than our operations and activities. The sponsor currently
      controls and/or operates other entities that own properties in many of the
      markets in which we may seek to invest. The sponsor spends a material amount
      of
      time managing these properties and other assets unrelated to our business.
      Our
      business may suffer as a result because we lack the ability to manage it without
      the time and attention of our sponsor’s employees.




Our
      sponsor and its affiliates are general partners and sponsors of other real
      estate programs having investment objectives and legal and financial obligations
      similar to ours. Because the sponsor and its affiliates have interests in other
      real estate programs and also engage in other business activities, they may
      have
      conflicts of interest in allocating their time and resources among our business
      and these other activities. Our officers and directors, as well as those of
      the
      advisor, may own equity interests in entities affiliated with our sponsor from
      which we may buy properties. These individuals may make substantial profits
      in
      connection with such transactions, which could result in conflicts of interest.
      Likewise, such individuals could make substantial profits as the result of
      investment opportunities allocated to entities affiliated with the sponsor
      other
      than us. As a result of these interests, they could pursue transactions that
      may
      not be in our best interest. Also, if our sponsor suffers financial or
      operational problems as the result of any of its activities, whether or not
      related to our business, the ability of our sponsor and its affiliates, our
      advisor and property manager to operate our business could be adversely
      impacted.




***Certain
      of our affiliates who provide services to us may be engaged in competitive
      activities.*** Our
      advisor, property manager and their respective affiliates may, in the future,
      be
      engaged in other activities that could result in potential conflicts of interest
      with the services that they will provide to us. In addition, the sponsor may
      compete with us for both the acquisition and/or refinancing of properties of
      a
      type suitable for our investment following the final closing of the offering
      of
      our common shares and after 75% of the total gross proceeds from such offering
      of the shares have been invested or committed for investment in real properties.




***If
      we invest in joint ventures, the objectives of our partners may conflict with
      our objectives.*** In
      accordance with one of our acquisition strategies, we may make investments
      in
      joint ventures or other partnership arrangements between us and affiliates
      of
      our sponsor or with unaffiliated third parties. Investments in joint ventures
      which own real properties may involve risks otherwise not present when we
      purchase real properties directly. For example, our co-venturer may file for
      bankruptcy protection, may have economic or business interests or goals which
      are inconsistent with our interests or goals, or may take actions contrary
      to
      our instructions, requests, policies or objectives. Among other things, actions
      by a co-venturer might subject real properties owned by the joint venture to
      liabilities greater than those contemplated by the terms of the joint venture
      or
      other adverse consequences.




These
      diverging interests could result in, among other things, exposing us to
      liabilities of the joint venture in excess of our proportionate share of these
      liabilities. The partition rights of each owner in a jointly owned property
      could reduce the value of each portion of the divided property. Moreover, there
      is an additional risk that the co-venturers may not be able to agree on matters
      relating to the property they jointly own. In addition, the fiduciary obligation
      that our sponsor or our board of directors may owe to our partner in an
      affiliated transaction may make it more difficult for us to enforce our rights.




***We
      may purchase real properties from persons with whom affiliates of our advisor
      have prior business relationships.*** If
      we
      purchase properties from third parties who have sold, or may sell, properties
      to
      our advisors or its affiliates, our advisor will experience a conflict between
      our current interests and its interest in preserving any ongoing business
      relationship with these sellers.





***Property
      management services are being provided by an affiliated party.*** Our
      property manager is owned by our sponsor, and is thus subject to an inherent
      conflict of interest. In addition, our advisor may face a conflict of interest
      when determining whether we should dispose of any property we own that is
      managed by the property manager because the property manager may lose fees
      associated with the management of the property. Specifically, because the
      property manager will receive significant fees for managing our properties,
      our
      advisor may face a conflict of interest when determining whether we should
      sell
      properties under circumstances where the property manager would no longer manage
      the property after the transaction. As a result of this conflict of interest,
      we
      may not dispose of properties when it would be in our best interests to do
      so.


10


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**




***Our
      advisor and its affiliates receive commissions, fees and other compensation
      based upon our investments.*** Some
      compensation is payable to our advisor whether or not there is cash available
      to
      make distributions to our stockholders. To the extent this occurs, our advisor
      and its affiliates benefit from us retaining ownership of our assets and
      leveraging our assets, while our stockholders may be better served by sale
      or
      disposition or not leveraging the assets. In addition, the advisor’s ability to
      receive fees and reimbursements depends on our continued investment in real
      properties. Therefore, the interest of the advisor and its affiliates in
      receiving fees may conflict with the interest of our stockholders in earning
      income on their investment in our common stock. Because asset management fees
      payable to our advisor are based on total assets under management, including
      assets purchased using indebtedness, our advisor may have an incentive to incur
      a high level of leverage in order to increase the total amount of assets under
      management.




***Our
      sponsor may face conflicts of interest in connection with the management of
      our
      day-to-day operations and in the enforcement of agreements between our sponsor
      and its affiliates.*** The
      property manager and the advisor will manage our day-to-day operations and
      properties pursuant to a management agreement and an advisory agreement. These
      agreements were not negotiated at arm’s length and certain fees payable by us
      under such agreements are paid regardless of our performance. Our sponsor and
      its affiliates may be in a conflict of interest position as to matters relating
      to these agreements. Examples include the computation of fees and reimbursements
      under such agreements, the enforcement and/or termination of the agreements
      and
      the priority of payments to third parties as opposed to amounts paid to our
      sponsor’s affiliates. These fees may be higher than fees charged by third
      parties in an arm’s-length transaction as a result of these conflicts.




***We
      may compete with other entities affiliated with our sponsor for
      tenants.*** The
      sponsor and its affiliates are not prohibited from engaging, directly or
      indirectly, in any other business or from possessing interests in any other
      business venture or ventures, including businesses and ventures involved in
      the
      acquisition, development, ownership, management, leasing or sale of real estate
      projects. The sponsor or its affiliates may own and/or manage properties in
      most
      if not all geographical areas in which we expect to acquire real estate assets.
      Therefore, our properties may compete for tenants with other properties owned
      and/or managed by the sponsor and its affiliates. The sponsor may face conflicts
      of interest when evaluating tenant opportunities for our properties and other
      properties owned and/or managed by the sponsor and its affiliates and these
      conflicts of interest may have a negative impact on our ability to attract
      and
      retain tenants.




***We
      have the same legal counsel as our sponsor and its affiliates.*** Proskauer
      Rose LLP serves as our general legal counsel, as well as special counsel to
      our
      sponsor and various affiliates including, our advisor. The interests of our
      sponsor and its affiliates, including our sponsor, may become adverse to ours
      in
      the future. Under legal ethics rules, Proskauer Rose LLP may be precluded from
      representing us due to any conflict of interest between us and our sponsor
      and
      its affiliates, including our advisor.




**Risks
      Related to our Organization, Structure and Management**




***Limitations
      on Changes in Control (Anti-Takeover Provisions).*** Because
      of the way we are organized, we would be a difficult takeover target. Certain
      provisions in our charter, bylaws, operating partnership agreement, advisory
      agreement and Maryland law may have the effect of discouraging a third party
      from making an acquisition proposal and could thereby depress the price of
      our
      stock and inhibit a management change. Provisions which may have an
      anti-takeover effect and inhibit a change in our management include:




***There
      are ownership limits and restrictions on transferability and ownership in our
      charter.*** In
      order
      for us to qualify as a REIT, no more than 50% of the outstanding shares of
      our
      stock may be beneficially owned, directly or indirectly, by five or fewer
      individuals at any time during the last half of each taxable year. To make
      sure
      that we will not fail to qualify as a REIT under this test, our charter provides
      that, subject to some exceptions, no person may beneficially own (i) more than
      9.8% in value of our aggregate outstanding stock or (ii) more than 9.8% in
      terms of the number of outstanding shares or the value of our common stock.
      Our
      board of directors may exempt a person from the 9.8% ownership limit upon such
      conditions as the board of directors may direct. However, our board of directors
      may not grant an exemption from the 9.8% ownership limit to any proposed
      transferee if it would result in the termination of our status as a REIT.


11


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**




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 for holders of our common stock; or




•
            compel
                a stockholder who had acquired more than 9.8% of our stock to dispose
                of
                the additional shares and, as a result, to forfeit the benefits of
                owning
                the additional shares.




Our
      charter permits our board of directors to issue preferred stock with terms
      that
      may discourage a third party from acquiring us. Our charter authorizes us to
      issue additional authorized but unissued shares of common stock or preferred
      stock. In addition, our board of directors may classify or reclassify any
      unissued shares of common stock or preferred stock and may set the preferences,
      rights and other terms of the classified or reclassified shares. Our board
      of
      directors could establish a series of Preferred Stock that could delay or
      prevent a transaction or a change in control that might involve a premium price
      for the Common Stock or otherwise be in the best interest of our stockholders.




***The
      operating partnership agreement contains provisions that may discourage a third
      party from acquiring us.*** A
      limited
      partner in Lightstone Value Plus REIT LP, a Delaware limited partnership and
      our
      operating partnership, has the option to exchange his or her limited partnership
      units for cash or, at our option, shares of our common stock. Those exchange
      rights are generally not exercisable until the limited partner has held those
      limited partnership units for more than one year. However, if we or the
      operating partnership propose to engage in any merger, consolidation or other
      combination with or into another person or a sale of all or substantially all
      of
      our assets, or a liquidation, or any reclassification, recapitalization or
      change of common and preferred stock into which a limited partnership common
      unit may be exchanged, each holder of a limited partnership unit will have
      the
      right to exchange the partnership unit into cash or, at our option, shares
      of
      common


stock,
      prior to the stockholder vote on the transaction. As a result, limited
      partnership unit holders who timely exchange their units prior to the record
      date for the stockholder vote on any transaction will be entitled to vote their
      shares of common stock with respect to the transaction. The additional shares
      that might be outstanding as a result of these exchanges of limited partnership
      units may deter an acquisition proposal.




***Maryland
      law may discourage a third party from acquiring us.*** Maryland
      law restricts mergers and other business combinations and provides that control
      shares of a Maryland corporation acquired in a control share acquisition have
      limited voting rights. These provisions of Maryland law are more fully described
      below under the heading “Provisions of Maryland Law and of our Charter and
      Bylaws.” The business combination statute could have the effect of discouraging
      offers from third parties to acquire us and increasing the difficulty of
      successfully completing this type of offer. The control share statute may
      discourage others from trying to acquire control of us and increase the
      difficulty of consummating any offer. Our bylaws contain a provision exempting
      from the control share acquisition statute any and all acquisitions by the
      sponsor and its affiliates of shares of our stock, however, this provision
      may
      be amended or eliminated at any time in the future.




***Management
      and Policy Changes***




***We
      may not be reimbursed by our advisor for certain operational stage expenses.*** Our
      advisor may be required to reimburse us for certain operational stage expenses.
      In the event our advisor’s net worth or cash flow is not sufficient to cover
      these expenses, we will not be reimbursed. This may adversely affect our
      financial condition and our ability to pay distributions.




***Our
      rights and the rights of our stockholders to take action against the directors
      and the advisor are limited.*** Maryland
      law provides that a director has no liability in that capacity if he or she
      performs his duties in good faith, in a manner he or she reasonably believes
      to
      be in the best interests of the corporation and with the care that an ordinarily
      prudent person in a like position would use under similar circumstances. Subject
      to the restrictions discussed below, our charter, in the case of our directors,
      officers, employees and agents, and the advisory agreement, in the case of
      the
      advisor, require us to indemnify our directors, officers, employees and agents
      and the advisor for actions taken on our behalf, in good faith and in our best
      interest and without negligence or misconduct or, in the case of independent
      directors, without gross negligence or


12


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





willful
      misconduct. As a result, we and the stockholders may have more limited rights
      against our directors, officers, employees and agents, and the advisor than
      might otherwise exist under common law. In addition, we may be obligated to
      fund
      the defense costs incurred by our directors, officers, employees and agents
      or
      the advisor in some cases.




***Stockholders
      have limited control over changes in our policies.*** Our
      board
      of directors determines our major policies, including our investment objectives,
      financing, growth, debt capitalization, REIT qualification and distributions.
      Subject to the investment objections and limitations set forth in our charter,
      our board of directors may amend or revise these and other policies. Although
      stockholders will have limited control over changes in our policies, our charter
      requires the concurrence of a majority of our outstanding stock in order for
      the
      board of directors to amend our charter (except for amendments that do not
      adversely affect stockholders’ rights, preferences and privileges), sell all or
      substantially all of our assets other than in the ordinary course of business
      or
      in connection with our liquidation or dissolution, cause our merger or other
      reorganization, or dissolve or liquidate us, other than before our initial
      investment in property.




***Certain
      of our affiliates will receive substantial fees prior to the payment of
      dividends to our stockholders.*** We
      will
      pay or cause to be paid substantial compensation to our dealer manager, advisor,
      property manager, management and affiliates and their employees. We will pay
      various types of compensation to affiliates of The Lightstone Group and such
      affiliates’ employees, including salaries, other cash compensation and options.
      In addition, our affiliates, Lightstone Securities and Lightstone Value Plus
      REIT, LLC, will receive compensation for acting, respectively, as our dealer
      manager and advisor (although we will pay dealer manager fees and selling
      commissions with the proceeds from the sale of the special general partner
      interests in our operating partnership to the sponsor or an affiliate). In
      general, this compensation will not be dependent on our success or
      profitability. These payments are payable before the payment of dividends to
      the
      stockholders and none of these payments are subordinated to a specified return
      to the stockholders. Also, Lightstone Value Plus REIT Management LLC, our
      property manager and an affiliate of The Lightstone Group, will receive
      compensation under the Management Agreement though, in general, this
      compensation would be dependent on our gross revenues. In addition, other
      affiliates may from time to time provide services to us if and as approved
      by
      the disinterested directors. It is possible that we could obtain such goods
      and
      services from unrelated persons at a lesser price. We do not currently own
      properties or other investments, we have not obtained any financing and we
      do
      not currently conduct any operations.




***Limitations
      on Liability and Indemnification***




***The
      liability of directors and officers is limited.*** Our
      directors and officers will not be liable for monetary damages unless the
      director or officer actually received an improper benefit or profit in money,
      property or services, or is adjudged to be liable to us or our stockholders
      based on a finding that his or her action, or failure to act, was the result
      of
      active and deliberate dishonesty and was material to the cause of action
      adjudicated in the proceeding.




Our
      directors are also required to act in good faith in a manner believed by them
      to
      be in our best interests and with the care that an ordinarily prudent person
      in
      a like position would use under similar circumstances. A director who performs
      his or her duties in accordance with the foregoing standards should not be
      liable to us or any other person for failure to discharge his obligations as
      a
      director. We are permitted to purchase and maintain insurance or provide similar
      protection on behalf of any directors, officers, employees and agents, including
      our advisor and its affiliates, against any liability asserted which was
      incurred in any such capacity with us or arising out of such status, except
      as
      limited by our charter. This may result in us having to expend significant
      funds, which will reduce the available cash for distribution to our
      stockholders.




Our
      charter prohibits us from indemnifying or holding harmless, for any loss or
      liability that we suffer, any director, officer, employee, agent or the advisor
      or its affiliates.




***We
      may indemnify our directors, officers and agents against
      loss.*** Under
      our charter, we will, under specified conditions, indemnify and pay or reimburse
      reasonable expenses to our directors, officers, employees and other agents,
      including our advisor and its affiliates, against all liabilities incurred
      in
      connection with their serving in such capacities, subject to the limitations
      set
      forth in our charter. We may also enter into any contract for indemnity and
      advancement of expenses in this regard. This may result in us having to expend
      significant funds, which will reduce the available cash for distribution to
      our
      stockholders.




13


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





**Risks
      Associated with our Properties and the Market**




***Real
      Estate Investment Risks***




***Operating
      risks.***




***Failure
      to generate revenue may reduce distributions to
      stockholders.*** The cash
      flow from equity investments in commercial and residential properties depends
      on
      the amount of revenue generated and expenses incurred in operating the
      properties. If the properties we invest in fail to generate revenue that is
      sufficient to meet operating expenses, debt service, and capital expenditures,
      our income and ability to make distributions to stockholders will be adversely
      affected.




***Economic
      conditions may adversely affect our income.*** A
      commercial or residential property’s income and value may be adversely affected
      by national and regional economic conditions, local real estate conditions
      such
      as an oversupply of properties or a reduction in demand for properties,
      availability of “for sale” properties, competition from other similar
      properties, our ability to provide adequate maintenance, insurance and
      management services, increased operating costs (including real estate taxes),
      the attractiveness and location of the property and changes in market rental
      rates. Our income will be adversely affected if the properties we invest in
      cannot be rented on favorable terms or if a significant number of tenants in
      such properties are unable to pay rent. Our performance is linked to economic
      conditions in the regions where the properties we invest in will be located
      and
      in the market for residential, office, retail and industrial space generally.
      Therefore, to the extent that there are adverse economic conditions in those
      regions, and in these markets generally, that impact the applicable market
      rents, such conditions could result in a reduction of our income and cash
      available for distributions and thus affect the amount of distributions we
      can
      make to stockholders.




***The
      profitability of attempted acquisitions is uncertain.*** We
      intend
      to acquire properties selectively. Acquisition of properties entails risks
      that
      investments will fail to perform in accordance with expectations. In undertaking
      these acquisitions, we will incur certain risks, including the expenditure
      of
      funds on, and the devotion of management’s time to, transactions that may not
      come to fruition. Additional risks inherent in acquisitions include risks that
      the properties will not achieve anticipated occupancy levels and that estimates
      of the costs of improvements to bring an acquired property up to standards
      established for the market position intended for that property may prove
      inaccurate.




***Real
      estate investments are illiquid.*** Because
      real estate investments are relatively illiquid, our ability to vary our
      portfolio promptly in response to economic or other conditions will be limited.
      In addition, certain significant expenditures, such as debt service, real estate
      taxes, and operating and maintenance costs generally are not reduced in
      circumstances resulting in a reduction in income from the investment. The
      foregoing and any other factor or event that would impede our ability to respond
      to adverse changes in the performance of our investments could have an adverse
      effect on our financial condition and results of operations.




***Rising
      expenses could reduce cash flow and funds available for future acquisitions.*** Properties
      we invest in will be subject to increases in tax rates, utility costs, operating
      expenses, insurance costs, repairs and maintenance, administrative and other
      expenses. While some of our properties may be leased on a triple-net basis
      or
      require the tenants to pay a portion of the expenses, renewals of leases or
      future leases may not be negotiated on that basis, in which event we will have
      to pay those costs. If we are unable to lease properties on a triple-net basis
      or on a basis requiring the tenants to pay all or some of the expenses, we
      would
      be required to pay those costs, which could adversely affect funds available
      for
      future acquisitions or cash available for distributions.





***We
      will depend on tenants who lease from us on a triple-net basis to pay the
      appropriate portion of expenses.*** If the
      tenants lease on a triple-net basis fail to pay required tax, utility and other
      impositions, we could be required to pay those costs for properties we invest
      in, which would adversely affect funds available for future acquisitions or
      cash
      available for distributions. If we lease properties on a triple-net basis,
      we
      run the risk of tenant default or downgrade in the tenant’s credit, which could
      lead to default, and foreclosure on the underlying property.




***If
      we purchase assets at a time when the commercial and residential real estate
      market is experiencing substantial influxes of capital investment and
      competition for properties, the real estate we purchase may not appreciate
      or
      may decrease in value.*** The
      commercial and residential real estate markets are currently experiencing a
      substantial influx of capital from investors. This substantial flow of capital,
      combined with significant competition for real estate, may result in


14





**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





inflated
      purchase prices for such assets. To the extent we purchase real estate in such
      an environment, we are subject to the risk that if the real estate market ceases
      to attract the same level of capital investment in the future as it is currently
      attracting, or if the number of companies seeking to acquire such assets
      decreases, our returns will be lower and the value of our assets may not
      appreciate or may decrease significantly below the amount we paid for such
      assets.




***The
      bankruptcy or insolvency of a major commercial tenant would adversely impact
      us.*** Any
      or
      all of the commercial tenants in a property we invest in, or a guarantor of
      a
      commercial tenant’s lease obligations, could be subject to a bankruptcy
      proceeding. The bankruptcy or insolvency of a significant commercial tenant
      or a
      number of smaller commercial tenants would have an adverse impact on our income
      and our ability to pay dividends because a tenant or lease guarantor bankruptcy
      could delay efforts to collect past due balances under the relevant leases,
      and
      could ultimately preclude full collection of these sums. Such an event could
      cause a decrease or cessation of rental payments that would mean a reduction
      in
      our cash flow and the amount available for distributions to stockholders.




Generally,
      under bankruptcy law, a tenant has the option of continuing or terminating
      any
      unexpired lease. In the event of a bankruptcy, there is no assurance that the
      tenant or its trustee will continue our lease. If a given lease, or guaranty
      of
      a lease, is not assumed, our cash flow and the amounts available for
      distributions to stockholders may be adversely affected. If the tenant continues
      its current lease, the tenant must cure all defaults under the lease and provide
      adequate assurance of its future performance under the lease. If the tenant
      terminates the lease, we will lose future rent under the lease and our claim
      for
      past due amounts owing under the lease will be treated as a general unsecured
      claim and may be subject to certain limitations. General unsecured claims are
      the last claims paid in a bankruptcy and therefore this claim could be paid
      only
      in the event funds were available, and then only in the same percentage as
      that
      realized on other unsecured claims. While the bankruptcy of any tenant and
      the
      rejection of its lease may provide us with an opportunity to lease the vacant
      space to another more desirable tenant on better terms, there can be no
      assurance that we would be able to do so.




***The
      terms of new leases may adversely impact our income.*** Even
      if
      the tenants of the properties we invest in do renew their leases, or we relet
      the units to new tenants, the terms of renewal or reletting may be less
      favorable than current lease terms. If the lease rates upon renewal or reletting
      are significantly lower than expected rates, then our results of operations
      and
      financial condition will be adversely affected. As noted above, certain
      significant expenditures associated with each equity investment in real estate
      (such as mortgage payments, real estate taxes and maintenance costs) are
      generally not reduced when circumstances result in a reduction in rental income.




***We
      may depend on commercial tenants for our revenue and therefore our revenue
      may
      depend on the success and economic viability of our commercial tenants. Our
      reliance on single or significant commercial tenants in certain buildings may
      decrease our ability to lease vacated space.*** Our
      financial results will depend in part on leasing space in the properties we
      acquire to tenants on economically favorable terms. A default by a commercial
      tenant, the failure of a guarantor to fulfill its obligations or other premature
      termination of a lease, or a commercial tenant’s election not to extend a lease
      upon its expiration could have an adverse effect on our income, general
      financial condition and ability to pay distributions. Therefore, our financial
      success is indirectly dependent on the success of the businesses operated by
      the
      commercial tenants of our properties.




Lease
      payment defaults by commercial tenants would most likely cause us to reduce
      the
      amount of distributions to stockholders. In the event of a tenant default,
      we
      may experience delays in enforcing our rights as landlord and may incur
      substantial costs in protecting our investment and re-letting our property.
      A
      default by a significant commercial tenant or a substantial number of commercial
      tenants at any one time on lease payments to us would cause us to lose the
      revenue associated with such lease(s) and cause us to have to find an
      alternative source of revenue to meet mortgage payments and prevent a
      foreclosure if the property is subject to a mortgage. Therefore, lease payment
      defaults by tenants could cause us to reduce the amount of distributions to
      stockholders.




Commercial
      tenants may have the right to terminate their leases upon the occurrence of
      certain customary events of default and, in other circumstances, may not renew
      their leases or, because of market conditions, may be able to renew their leases
      on terms that are less favorable to us than the terms of the current leases.
      If
      a lease is terminated, there is no assurance that we will be able to lease
      the
      property for the rent previously received or sell the property without incurring
      a loss. Therefore, the weakening of the financial condition of a significant
      commercial tenant or a number of smaller commercial tenants and vacancies caused
      by defaults of tenants or the expiration of leases may adversely affect our
      operations.


15





**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





***A
      property that incurs a vacancy could be difficult to re-lease.*** A
      property may incur a vacancy either by the continued default of a tenant under
      its lease or the expiration of one of our leases. If we terminate any lease
      following a default by a lessee, we will have to re-lease the affected property
      in order to maintain our qualification as a REIT. If a tenant vacates a
      property, we may be unable either to re-lease the property for the rent due
      under the prior lease or to re-lease the property without incurring additional
      expenditures relating to the property. In addition, we could experience delays
      in enforcing our rights against, and collecting rents (and, in some cases,
      real
      estate taxes and insurance costs) due from a defaulting tenant. Any delay we
      experience in re-leasing a property or difficulty in re-leasing at acceptable
      rates may reduce cash available to make distributions to our stockholders.




In
      many
      cases, tenant leases contain provisions giving the tenant the exclusive right
      to
      sell particular types of merchandise or provide specific types of services
      within the particular retail center, or limit the ability of other tenants
      to
      sell such merchandise or provide such services. When re-leasing space after
      a
      vacancy is necessary, these provisions may limit the number and types of
      prospective tenants for the vacant space.




We
      also
      may have to incur substantial expenditures in connection with any re-leasing.
      A
      number of the properties we invest in may be specifically suited to the
      particular needs of our tenants. Therefore, we may have difficulty obtaining
      a
      new tenant for any vacant space we have in our properties, particularly if
      the
      floor plan of the vacant space limits the types of businesses that can use
      the
      space without major renovation. If the vacancy continues for a long period
      of
      time, we may suffer reduced revenues resulting in less cash dividends to be
      distributed to stockholders. As noted above, certain significant expenditures
      associated with each equity investment (such as mortgage payments, real estate
      taxes and maintenance costs) are generally not reduced when circumstances cause
      a reduction in income from the investment. The failure to re-lease or to
      re-lease on satisfactory terms could result in a reduction of our income, funds
      from operations and cash available for distributions and thus affect the amount
      of distributions to stockholders. In addition, the resale value of the property
      could be diminished because the market value of a particular property will
      depend principally upon the value of the leases of such property.





***We
      may be unable to sell a property if or when we decide to do
      so.*** We may
      give some commercial tenants the right, but not the obligation, to purchase
      their properties from us beginning a specified number of years after the date
      of
      the lease. Some of our leases also generally provide the tenant with a right
      of
      first refusal on any proposed sale provisions. These policies may lessen the
      ability of the advisor and our board of directors to freely control the sale
      of
      the property.




Although
      we may grant a lessee a right of first offer or option to purchase a property,
      there is no assurance that the lessee will exercise that right or that the
      price
      offered by the lessee in the case of a right of first offer will be adequate.
      In
      connection with the acquisition of a property, we may agree on restrictions
      that
      prohibit the sale of that property for a period of time or impose other
      restrictions, such as a limitation on the amount of debt that can be placed
      or
      repaid on that property. Even absent such restrictions, the real estate market
      is affected by many factors, such as general economic conditions, availability
      of financing, interest rates and other factors, including supply and demand,
      that are beyond our control. We may not be able to sell any property for the
      price or on the terms set by us, and prices or other terms offered by a
      prospective purchaser may not be acceptable to us. We cannot predict the length
      of time needed to find a willing purchaser and to close the sale of a property.
      We may be required to expend funds to correct defects or to make improvements
      before a property can be sold. We may not have funds available to correct such
      defects or to make such improvements.




***We
      may not make a profit if we sell a property.*** The
      prices that we can obtain when we determine to sell a property will depend
      on
      many factors that are presently unknown, including the operating history, tax
      treatment of real estate investments, demographic trends in the area and
      available financing. There is a risk that we will not realize any significant
      appreciation on our investment in a property. Accordingly, stockholders’ ability
      to recover all or any portion of stockholders’ investment under such
      circumstances will depend on the amount of funds so realized and claims to
      be
      satisfied therefrom.




***Our
      properties may not be diversified.*** Because
      this offering will be made on a best efforts basis, our potential profitability
      and our ability to diversify our investments, both geographically and by type
      of
      properties purchased, will be limited by the amount of funds we raise. We will
      be able to purchase additional properties only as additional funds are raised.
      Even if we sell 30,000,000 shares of common stock for $300,000,000, our
      properties may not be well diversified and their economic performance could
      be
      affected by changes in local economic conditions.


16


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





Our
      current strategy is to acquire interests primarily in industrial facilities,
      retail space (primarily multi-tenanted shopping centers), office buildings,
      residential apartment communities and other income-producing real estate. As
      a
      result, we are subject to the risks inherent in investing in these industries.
      A
      downturn in the office, industrial, retail or residential industry may have
      more
      pronounced effects on the amount of cash available to us for distribution or
      on
      the value of our assets than if we had diversified our investments.




Our
      performance is therefore linked to economic conditions in the regions in which
      we will acquire properties and in the market for real estate properties
      generally. Therefore, to the extent that there are adverse economic conditions
      in the regions in which our properties are located and in the market for real
      estate properties, such conditions could result in a reduction of our income
      and
      cash to return capital and thus affect the amount of distributions we can make
      to stockholders.





***We
      may incur liabilities in connection with properties we acquire.*** Our
      anticipated acquisition activities are subject to many risks. We may acquire
      properties or entities that are subject to liabilities or that have problems
      relating to environmental condition, state of title, physical condition or
      compliance with zoning laws, building codes, or other legal requirements. In
      each case, our acquisition may be without any recourse, or with only limited
      recourse, with respect to unknown liabilities or conditions. As a result, if
      any
      liability were asserted against us relating to those properties or entities,
      or
      if any adverse condition existed with respect to the properties or entities,
      we
      might have to pay substantial sums to settle or cure it, which could adversely
      affect our cash flow and operating results. However, some of these liabilities
      may be covered by insurance. In addition, we intend to perform customary due
      diligence regarding each property or entity we acquire. We also will attempt
      to
      obtain appropriate representations and indemnities from the sellers of the
      properties or entities we acquire, although it is possible that the sellers
      may
      not have the resources to satisfy their indemnification obligations if a
      liability arises. Unknown liabilities to third parties with respect to
      properties or entities acquired might include:




•
            liabilities
                for clean-up of undisclosed environmental contamination;




•
            claims
                by tenants, vendors or other persons dealing with the former owners
                of the
                properties;




•
            liabilities
                incurred in the ordinary course of business; and




•
            claims
                for indemnification by general partners, directors, officers and
                others
                indemnified by the former owners of the properties.




***Competition
      with third parties in acquiring and operating properties may reduce our
      profitability and the return on stockholders’
investment.*** We
      compete with many other entities engaged in real estate investment activities,
      many of which have greater resources than we do. Specifically, there are
      numerous commercial developers, real estate companies, real estate investment
      trusts and U.S. institutional and foreign investors that operate in the markets
      in which we may operate, that will compete with us in acquiring residential,
      office, retail, industrial and other properties that will be seeking investments
      and tenants for these properties. Many of these entities have significant
      financial and other resources, including operating experience, allowing them
      to
      compete effectively with us.





Competitors
      with substantially greater financial resources than us may generally be able
      to
      accept more risk than we can prudently manage, including risks with respect
      to
      the creditworthiness of entities in which investments may be made or risks
      attendant to a geographic concentration of investments. In addition, those
      competitors that are not REITs may be at an advantage to the extent they can
      utilize working capital to finance projects, while we (and our competitors
      that
      are REITs) will be required by the annual distribution provisions under the
      Internal Revenue Code to distribute significant amounts of cash from operations
      to our stockholders.





17


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





Demand
      from third parties for properties that meet our investment objectives could
      result in an increase of the price of such properties. If we pay higher prices
      for properties, our profitability may be reduced and stockholders may experience
      a lower return on stockholders’ investment. In addition, our properties may be
      located in close proximity to other properties that will compete against our
      properties for tenants. Many of these competing properties may be better located
      and/or appointed than the properties that we will acquire, giving these
      properties a competitive advantage over our properties, and we may, in the
      future, face additional competition from properties not yet constructed or
      even
      planned. This competition could adversely affect our business. The number of
      competitive properties could have a material effect on our ability to rent
      space
      at our properties and the amount of rents charged.





We
      could
      be adversely affected if additional competitive properties are built in
      locations competitive with our properties, causing increased competition for
      residential renters, retail customer traffic and creditworthy commercial
      tenants. In addition, our ability to charge premium rental rates to tenants
      may
      be negatively impacted. This increased competition may increase our costs of
      acquisitions or lower the occupancies and the rent we may charge tenants. This
      could result in decreased cash flow from tenants and may require us to make
      capital improvements to properties which we would not have otherwise made,
      thus
      affecting cash available for distributions to stockholders.





***We
      may not have control over costs arising from rehabilitation of properties.*** We
      may
      elect to acquire properties which may require rehabilitation. In particular,
      we
      may acquire affordable properties that we will rehabilitate and convert to
      market rate properties. Consequently, we intend to retain independent general
      contractors to perform the actual physical rehabilitation work and will be
      subject to risks in connection with a contractor’s ability to control
      rehabilitation costs, the timing of completion of rehabilitation, and a
      contractor’s ability to build in conformity with plans and specifications.




***We
      may incur losses as result of defaults by the purchasers of properties we sell
      in certain circumstances.*** If
      we
      decide to sell any of our properties, we will use our best efforts to sell
      them
      for cash. However, we may sell our properties by providing financing to
      purchasers. When we provide financing to purchasers, we will bear the risk
      of
      default by the purchaser and will be subject to remedies provided by law. There
      are no limitations or restrictions on our ability to take purchase money
      obligations. We may incur losses as a result of such defaults, which may
      adversely affect our available cash and our ability to make distributions to
      stockholders.




***We
      may experience energy shortages and allocations.*** There
      may
      be shortages or increased costs of fuel, natural gas, water, electric power
      or
      allocations thereof by suppliers or governmental regulatory bodies in the areas
      where we purchase properties, in which event the operation of our properties
      may
      be adversely affected.




***We
      may acquire properties with lockout provisions which may prohibit us from
      selling a property, or may require us to maintain specified debt levels for
      a
      period of years on some properties.*** We may
      acquire properties in exchange for operating partnership units and agree to
      restrictions on sales or refinancing, called “lock-out” provisions that are
      intended to preserve favorable tax treatment for the owners of such properties
      who sell them to us. Lockout provisions may restrict sales or refinancings
      for a
      certain period in order to comply with the applicable government regulations.
      Lockout provisions could materially restrict us from selling or otherwise
      disposing of or refinancing properties. This would affect our ability to turn
      our investments into cash and thus affect cash available to return capital
      to
      stockholders. Lockout provisions could impair our ability to take actions during
      the lockout period that would otherwise be in the best interests of our
      stockholders and, therefore, might have an adverse impact on the value of the
      shares, relative to the value that would result if the lockout provisions did
      not exist. In particular, lockout 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.




***Changes
      in applicable laws may adversely affect the income and value of our properties.*** The
      income and value of a property may be affected by such factors as environmental,
      rent control and other laws and regulations, changes in applicable general
      and
      real estate tax laws (including the possibility of changes in the federal income
      tax laws or the lengthening of the depreciation period for real estate) and
      interest rates, the availability of financing, acts of nature (such as
      hurricanes and floods) and other factors beyond our control.


18


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**




***Retail
      industry risks.***




Some
      of
      the properties that we intend to own and operate may consist of retail
      properties (primarily multi-tenanted shopping centers). Our retail properties
      will be subject to the various risks discussed above. In addition, they will
      be
      subject to the risks discussed below.




***Retail
      conditions may adversely affect our income.*** A retail
      property’s revenues and value may be adversely affected by a number of factors,
      many of which apply to real estate investment generally, but which also include
      trends in the retail industry and perceptions by retailers or shoppers of the
      safety, convenience and attractiveness of the retail property. In addition,
      to
      the extent that the investing public has a negative perception of the retail
      sector, the value of our common stock may be negatively impacted.




Some
      of
      our leases may provide for base rent plus contractual base rent increases.
      A
      number of our retail leases may also include a percentage rent clause for
      additional rent above the base amount based upon a specified percentage of
      the
      sales our tenants generate. Under those leases that contain percentage rent
      clauses, our revenue from tenants may increase as the sales of our tenants
      increase. Generally, retailers face declining revenues during downturns in
      the
      economy. As a result, the portion of our revenue which we may derive from
      percentage rent leases could decline upon a general economic downturn. We do
      not
      currently own properties or other investments, we have not obtained any
      financing and we do not currently conduct any operations.




***Our
      revenue will be impacted by the success and economic viability of our anchor
      retail tenants. Our reliance on single or significant tenants in certain
      buildings may decrease our ability to lease vacated
      space.*** In the
      retail sector, any tenant occupying a large portion of the gross leasable area
      of a retail center, a tenant of any of the triple-net single-user retail
      properties outside the primary geographical area of investment, commonly
      referred to as an anchor tenant, or a tenant that is our anchor tenant at more
      than one retail center, may become insolvent, may suffer a downturn in business,
      or may decide not to renew its lease. Any of these events would result in a
      reduction or cessation in rental payments to us and would adversely affect
      our
      financial condition.





A
      lease
      termination by an anchor tenant could result in lease terminations or reductions
      in rent by other tenants whose leases permit cancellation or rent reduction
      if
      another tenant’s lease is terminated. We may own properties where the tenants
      may have rights to terminate their leases if certain other tenants are no longer
      open for business. These “co-tenancy” provisions may also exist in some leases
      where we own a portion of a retail property and one or more of the anchor
      tenants leases space in that portion of the center not owned or controlled
      by
      us. If such tenants were to vacate their space, tenants with co-tenancy
      provisions would have the right to terminate their leases with us or seek a
      rent
      reduction from us. In such event, we may be unable to re-lease the vacated
      space.





Similarly,
      the leases of some anchor tenants may permit the anchor tenant to transfer
      its
      lease to another retailer. The transfer to a new anchor tenant could cause
      customer traffic in the retail center to decrease and thereby reduce the income
      generated by that retail center. A lease transfer to a new anchor tenant could
      also allow other tenants to make reduced rental payments or to terminate their
      leases at the retail center. In the event that we are unable to re-lease the
      vacated space to a new anchor tenant, we may incur additional expenses in order
      to re-model the space to be able to re-lease the space to more than one tenant.




***Competition
      with other retail channels may reduce our profitability and the return on
      stockholders’ investment.*** Retail
      tenants will face potentially changing consumer preferences and increasing
      competition from other forms of retailing, such as discount shopping centers,
      outlet centers, upscale neighborhood strip centers, catalogues, discount
      shopping clubs, internet and telemarketing. Other retail centers within the
      market area of properties we invest in will compete with our properties for
      customers, affecting their tenants’ cash flows and thus affecting their ability
      to pay rent. In addition, tenants’ rent payments may be based on the amount of
      sales revenue that they generate. If these tenants experience competition,
      the
      amount of their rent may decrease and our cash flow will decrease.


19


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





***Residential
      industry risks.***




Although
      we do not currently own properties or other investments, we have not obtained
      any financing and we do not currently conduct any operations, some of the
      properties that we intend to own and operate may consist of residential
      properties. Our residential properties will be subject to the various risks
      discussed above. In addition, they will be subject to the risks discussed below.




***The
      short-term nature of our residential leases may adversely impact our income.*** If
      residents of properties we invest in decide not to renew their leases upon
      expiration, we may not be able to relet their units. Because substantially
      all
      of our residential leases will be for apartments, they will generally be for
      terms of no more than one or two years. If we are unable to promptly renew
      the
      leases or relet the units then our results of operations and financial condition
      will be adversely affected. Certain significant expenditures associated with
      each equity investment in real estate (such as mortgage payments, real estate
      taxes and maintenance costs) are generally not reduced when circumstances result
      in a reduction in rental income.




***An
      economic downturn could adversely affect the residential industry and may affect
      operations for the residential properties that we
      acquire.*** As a
      result of the effects of an economic downturn, including increased unemployment
      rates, the residential industry may experience a significant decline in business
      caused by a reduction in overall renters. Moreover, low residential mortgage
      interest rates could accompany an economic downturn and encourage potential
      renters to purchase residences rather than lease them. The residential
      properties we acquire may experience declines in occupancy rate due to any
      such
      decline in residential mortgage interest rates.




***Real
      Estate Financing Risks***




***General
      Financing Risks***




***We
      plan to incur mortgage indebtedness and other borrowings, which may increase
      our
      business risks.*** We
      intend
      to acquire properties subject to existing financing or by borrowing new funds.
      In addition, we intend to incur or increase our mortgage debt by obtaining
      loans
      secured by selected or all of the real properties to obtain funds to acquire
      additional real properties. We may also borrow funds if necessary to satisfy
      the
      requirement that we distribute to stockholders as dividends at least 90% of
      our
      annual REIT taxable income, or otherwise as is necessary or advisable to assure
      that we maintain our qualification as a REIT for federal income tax purposes.




We
      intend
      to incur mortgage debt on a particular real property if we believe the
      property’s projected cash flow is sufficient to service the mortgage debt.
      However, if there is a shortfall in cash flow, requiring us to use cash from
      other sources to make the mortgage payments on the property, then the amount
      available for distributions to stockholders may be affected. In addition,
      incurring mortgage debt increases the risk of loss since defaults on
      indebtedness secured by properties may result in foreclosure actions initiated
      by lenders and our loss of the property securing the loan which is in default.





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 would not receive any cash proceeds. We may, in
      some
      circumstances, give a guaranty on behalf of an entity that owns one of our
      properties. In these cases, 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, there is a risk
      that more than one real property may be affected by a default.




Any
      mortgage debt which we place on properties may contain clauses providing for
      prepayment penalties. If a lender invokes these penalties upon the sale of
      a
      property or the prepayment of a mortgage on a property, the cost to us to sell
      the property could increase substantially, and may even be prohibitive. This
      could lead to a reduction in our income, which would reduce cash available
      for
      distribution to stockholders and may prevent us from borrowing more money.
      Moreover, if we enter into financing arrangements involving balloon payment
      obligations, such financing arrangements will involve greater risks than
      financing arrangements whose principal amount is amortized over the term of
      the
      loan. At the time the balloon payment is due, we may or may not be able to
      refinance the balloon payment on terms as favorable as the original loan or
      sell
      the property at a price sufficient to make the balloon payment.




20


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





***If
      we have insufficient working capital reserves, we will have to obtain financing
      from other sources.*** We
      have
      established working capital reserves that we believe are adequate to cover
      our
      cash needs. However, if these reserves are insufficient to meet our cash needs,
      we may have to obtain financing to fund our cash requirements. Sufficient
      financing may not be available or, if available, may not be available on
      economically feasible terms or on terms acceptable to us. If mortgage debt
      is
      unavailable at reasonable rates, we will not be able to place financing on
      the
      properties, which could reduce the number of properties we can acquire and
      the
      amount of distributions per share.





If
      we
      place mortgage debt on the properties, we run the risk of being unable to
      refinance the properties when the loans come due, or of being unable to
      refinance on favorable terms. If interest rates are higher when the properties
      are refinanced, our income could be reduced, which would reduce cash available
      for distribution to stockholders and may prevent us from borrowing more money.
      Additional borrowing for working capital purposes will increase our interest
      expense, and therefore our financial condition and our ability to pay
      distributions may be adversely affected.




***We
      may not have funding or capital resources for future improvements.*** When
      a
      commercial tenant at a property we invest in does not renew its lease or
      otherwise vacates its space in such properties, it is likely that, in order
      to
      attract one or more new tenants, we will be required to expend substantial
      funds
      for leasing costs, tenant improvements and tenant refurbishments to the vacated
      space. We will incur certain fixed operating costs during the time the space
      is
      vacant as well as leasing commissions and related costs to re-lease the vacated
      space. We may also have similar future capital needs in order to renovate or
      refurbish any of our properties for other reasons.




Also,
      in
      the event we need to secure funding sources in the future but are unable to
      secure such sources or are unable to secure funding on terms we feel are
      acceptable, we may be required to defer capital improvements or refurbishment
      to
      a property. This may cause such property to suffer from a greater risk of
      obsolescence or a decline in value and/or produce decreased cash flow as the
      result of our inability to attract tenants to the property. If this happens,
      we
      may not be able to maintain projected rental rates for affected properties,
      and
      our results of operations may be negatively impacted. Or, we may be required
      to
      secure funding on unfavorable terms.




***We
      may be adversely affected by limitations in our charter on the aggregate amount
      we may borrow.*** Our
      charter limits the aggregate amount we may borrow, absent approval by our
      independent directors and justification for such excess. That limitation could
      have adverse business consequences such as:




•
            limiting
                our ability to purchase additional properties;





•
            causing
                us to lose our REIT status if additional borrowing was necessary
                to pay
                the required minimum amount of cash distributions to our stockholders
                to
                maintain our status as a REIT;




•
            causing
                operational problems if there are cash flow shortfalls for working
                capital
                purposes; and




•
            resulting
                in the loss of a property if, for example, financing was necessary
                to
                repay a default on a mortgage.




Any
      excess borrowing over the 300% level will be disclosed to stockholders in our
      next quarterly report, along with justification for such excess.




***Lenders
      may require us to enter into restrictive covenants relating to our operations.*** In
      connection with obtaining financing, a bank or other lender could impose
      restrictions on us affecting our ability to incur additional debt and our
      distribution and operating policies. Loan documents we enter into may contain
      negative covenants limiting our ability to, among other things, further mortgage
      our properties, discontinue insurance coverage or replace Lightstone Value
      Plus
      REIT, LLC as our advisor. In addition, prepayment penalties imposed by banks
      or
      other lenders could affect our ability to sell properties when we want.


21


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





***Financing
      Risks on the Property Level***




***Some
      of our mortgage loans may have “due on sale” provisions.*** In
      purchasing properties subject to financing, we may obtain financing with
“due-on-sale” and/or “due-on-encumbrance” clauses. Due-on-sale clauses in
      mortgages allow a mortgage lender to demand full repayment of the mortgage
      loan
      if the borrower sells the mortgaged property. Similarly, due-on-encumbrance
      clauses allow a mortgage lender to demand full repayment if the borrower uses
      the real estate securing the mortgage loan as security for another loan.





These
      clauses may cause the maturity date of such mortgage loans to be accelerated
      and
      such financing to become due. In such event, we may be required to sell our
      properties on an all-cash basis, to acquire new financing in connection with
      the
      sale, or to provide seller financing. It is not our intent to provide seller
      financing, although it may be necessary or advisable for us to do so in order
      to
      facilitate the sale of a property. It is unknown whether the holders of
      mortgages encumbering our properties will require such acceleration or whether
      other mortgage financing will be available. Such factors will depend on the
      mortgage market and on financial and economic conditions existing at the time
      of
      such sale or refinancing.




***Lenders
      may be able to recover against our other properties under our mortgage loans.*** We
      will
      seek secured loans (which are nonrecourse) to acquire properties. However,
      only
      recourse financing may be available, in which event, in addition to the property
      securing the loan, the lender may look to our other assets for satisfaction
      of
      the debt. Thus, should we be unable to repay a recourse loan with the proceeds
      from the sale or other disposition of the property securing the loan, the lender
      could look to one or more of our other properties for repayment. Also, in order
      to facilitate the sale of a property, we may allow the buyer to purchase the
      property subject to an existing loan whereby we remain responsible for the
      debt.




***Our
      mortgage loans may charge variable interest.*** Some
      of
      our mortgage loans will be subject to fluctuating interest rates based on
      certain index rates, such as the prime rate. Future increases in the index
      rates
      would result in increases in debt service on variable rate loans and thus reduce
      funds available for acquisitions of properties and dividends to the
      stockholders. We do not currently own properties or other investments, we have
      not obtained any financing and we do not currently conduct any operations.




***Insurance
      Risks.***




***We
      may suffer losses that are not covered by insurance.*** If
      we
      suffer losses that are not covered by insurance or that are in excess of
      insurance coverage, we could lose invested capital and anticipated profits.
      We
      intend to cause comprehensive insurance to be obtained for our properties,
      including casualty, liability, fire, extended coverage and rental loss
      customarily obtained for similar properties in amounts which our advisor
      determines are sufficient to cover reasonably foreseeable losses, with policy
      specifications and insured limits that we believe are adequate and appropriate
      under the circumstances.





Material
      losses may occur in excess of insurance proceeds with respect to any property
      as
      insurance proceeds may not provide sufficient resources to fund the losses.
      However, there are types of losses, generally of a catastrophic nature, such
      as
      losses due to wars, earthquakes, floods, hurricanes, pollution, environmental
      matters, mold or, in the future, terrorism which are either uninsurable or
      not
      economically insurable, or may be insured subject to limitations, such as large
      deductibles or co-payments.





Insurance
      companies have recently begun to exclude acts of terrorism from standard
      coverage. Terrorism insurance is currently available at an increased premium,
      and it is possible that the premium will increase in the future or that
      terrorism coverage will become unavailable. However, mortgage lenders in some
      cases have begun to insist that specific coverage against terrorism be purchased
      by commercial owners as a condition for providing loans. We intend to obtain
      terrorism insurance if required by our lenders, but the terrorism insurance
      that
      we obtain may not be sufficient to cover loss for damages to our properties
      as a
      result of terrorist attacks. In addition, we may not be able to obtain insurance
      against the risk of terrorism because it may not be available or may not be
      available on terms that are economically feasible. In such instances, we may
      be
      required to provide other financial support, either through financial assurances
      or self-insurance, to cover potential losses.





There
      is
      no assurance that we will have adequate coverage for such losses. If such an
      event occurred to, or caused the destruction of, one or more of our properties,
      we could lose both our invested capital and anticipated profits from such
      property. In addition, certain losses resulting from these types of events
      are
      uninsurable and others may not be covered by our terrorism insurance. Terrorism
      insurance may not be available at a reasonable price or at all.


22


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





However,
      on December 22, 2005, President Bush signed into law the Terrorism Risk
      Insurance Extension Act of 2005 (“TRIEA”). TRIEA extends the federal terrorism
      insurance backstop through 2007. The Terrorism Risk Insurance Act of 2002
      (“TRIA”), which expired on December 31, 2005, was adopted to ensure affordable
      terrorism insurance to commercial insureds, including real estate investment
      trusts. Its extension should increase availability of terrorism insurance
      coverage on our properties through 2007, and thus mitigate the risks described
      above.




In
      addition, many insurance carriers are excluding asbestos-related claims from
      standard policies, pricing asbestos endorsements at prohibitively high rates
      or
      adding significant restrictions to this coverage. Because of our inability
      to
      obtain specialized coverage at rates that correspond to the perceived level
      of
      risk, we may not obtain insurance for acts of terrorism or asbestos-related
      claims. We will continue to evaluate the availability and cost of additional
      insurance coverage from the insurance market. If we decide in the future to
      purchase insurance for terrorism or asbestos, the cost could have a negative
      impact on our results of operations. If an uninsured loss or a loss in excess
      of
      insured limits occurs on a property, we could lose our capital invested in
      the
      property, as well as the anticipated future revenues from the property and,
      in
      the case of debt that is recourse to us, would remain obligated for any mortgage
      debt or other financial obligations related to the property. Any loss of this
      nature would adversely affect us. Although we intend to adequately insure our
      properties, there is no assurance that we will successfully do so.




***Compliance
      with Laws.***




***The
      costs of compliance with environmental laws and regulations may adversely affect
      our income and the cash available for any
      distributions.*** All real
      property and the operations conducted on real property are subject to federal,
      state and local laws and regulations relating to environmental protection and
      human health and safety. These laws and regulations generally govern wastewater
      discharges, air emissions, the operation and removal of underground and
      aboveground storage tanks, the use, storage, treatment, transportation and
      disposal of solid and hazardous materials, and the remediation of contamination
      associated with disposals. Some of these laws and regulations may impose joint
      and several liability on tenants, owners or operators for the costs of
      investigation or remediation of contaminated properties, regardless of fault
      or
      the legality of the original disposal.





Under
      various federal, state and local laws, ordinances and regulations, a current
      or
      previous owner, developer or operator of real estate may be liable for the
      costs
      of removal or remediation of hazardous or toxic substances at, on, under or
      in
      its property. The costs of removal or remediation could be substantial. In
      addition, the presence of these substances, or the failure to properly remediate
      these substances, may adversely affect our ability to sell or rent such property
      or to use the property as collateral for future borrowing.





Environmental
      laws often impose liability without regard to whether the owner or operator
      knew
      of, or was responsible for, the presence of hazardous or toxic materials. Even
      if more than one person may have been responsible for the contamination, each
      person covered by the environmental laws may be held responsible for all of
      the
      clean-up costs incurred. In addition, third parties may sue the owner or
      operator of a site for damages and costs resulting from environmental
      contamination arising from that site. The presence of hazardous or toxic
      materials, or the failure to address conditions relating to their presence
      properly, may adversely affect the ability to rent or sell the property or
      to
      borrow using the property as collateral.





Persons
      who dispose of or arrange for the disposal or treatment of hazardous or toxic
      materials may also be liable for the costs of removal or remediation of such
      materials, or for related natural resource damages, at or from an off-site
      disposal or treatment facility, whether or not the facility is or ever was
      owned
      or operated by those persons. In addition, environmental laws today can impose
      liability on a previous owner or operator of a property that owned or operated
      the property at a time when hazardous or toxic substances were disposed on,
      or
      released from, the property. A conveyance of the property, therefore, does
      not
      relieve the owner or operator from liability.




There
      may
      be potential liability associated with lead-based paint arising from lawsuits
      alleging personal injury and related claims. Typically, the existence of lead
      paint is more of a concern in residential units than in commercial properties.
      Although a structure built prior to 1978 may contain lead-based paint and may
      present a potential for exposure to lead, structures built after 1978 are not
      likely to contain lead-based paint.




Properties’
      values may also be affected by their proximity to electric transmission lines.
      Electric transmission lines are one of many sources of electro-magnetic fields
      (“EMFs”) to which people may be exposed. Research completed regarding


23


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





potential
      health concerns associated with exposure to EMFs has produced inconclusive
      results. Notwithstanding the lack of conclusive scientific evidence, some states
      now regulate the strength of electric and magnetic fields emanating from
      electric transmission lines, and other states have required transmission
      facilities to measure for levels of EMFs.





On
      occasion, lawsuits have been filed (primarily against electric utilities) that
      allege personal injuries from exposure to transmission lines and EMFs, as well
      as from fear of adverse health effects due to such exposure. This fear of
      adverse health effects from transmission lines has been considered both when
      property values have been determined to obtain financing and in condemnation
      proceedings. We may not, in certain circumstances, search for electric
      transmission lines near our properties, but are aware of the potential exposure
      to damage claims by persons exposed to EMFs.




Recently,
      indoor air quality issues, including mold, have been highlighted in the media
      and the industry is seeing mold claims from lessees rising. To date, we have
      not
      incurred any material costs or liabilities relating to claims of mold exposure
      or abating mold conditions. However, due to the recent increase in mold claims
      and given that the law relating to mold is unsettled and subject to change,
      we
      could incur losses from claims relating to the presence of, or exposure to,
      mold
      or other microbial organisms, particularly if we are unable to maintain adequate
      insurance to cover such losses. We may also incur unexpected expenses relating
      to the abatement of mold on properties that we may acquire.




Limited
      quantities of asbestos-containing materials are present in various building
      materials such as floor coverings, ceiling texture material, acoustical tiles
      and decorative treatment. Environmental laws govern the presence, maintenance
      and removal of asbestos. These laws could be used to impose liability for
      release of, and exposure to, hazardous substances, including asbestos-containing
      materials, into the air. Such laws require that owners or operators of buildings
      containing asbestos (1) properly manage and maintain the asbestos, (2) notify
      and train those who may come into contact with asbestos and (3) undertake
      special precautions, including removal or other abatement, if asbestos would
      be
      disturbed during renovation or demolition of a building. Such laws may impose
      fines and penalties on building owners or operators who fail to comply with
      these requirements. These laws may allow third parties to seek recovery from
      owners or operators of real properties for personal injury associated with
      exposure to asbestos fibers. As the owner of our properties, we may be
      potentially liable for any such costs.




There
      is
      no assurance that properties which we acquire in the future will not have any
      material environmental conditions, liabilities or compliance concerns.
      Accordingly, we have no way of determining at this time the magnitude of any
      potential liability to which we may be subject arising out of environmental
      conditions or violations with respect to the properties we own.




***The
      costs of compliance with laws and regulations relating to our residential
      properties may adversely affect our income and the cash available for any
      distributions.***




Various
      laws, ordinances, and regulations affect multi-family residential properties,
      including regulations relating to recreational facilities, such as activity
      centers and other common areas. We intend for our properties to have all
      material permits and approvals to operate. In addition, rent control laws may
      also be applicable to any of the properties.




Some
      of
      these laws and regulations have been amended so as to require compliance with
      new or more stringent standards as of future dates. Compliance with new or
      more
      stringent laws or regulations, stricter interpretation of existing laws or
      the
      future discovery of environmental contamination may require material
      expenditures by us. Future laws, ordinances or regulations may impose material
      environmental liabilities, and the current environmental condition of our
      properties might be affected by the operations of the tenants, by the existing
      condition of the land, by operations in the vicinity of the properties, such
      as
      the presence of underground storage tanks, or by the activities of unrelated
      third parties.




These
      laws typically allow liens to be placed on the affected property. In addition,
      there are various local, state and federal fire, health, life-safety and similar
      regulations which we may be required to comply with, and which may subject
      us to
      liability in the form of fines or damages for noncompliance.




Any
      newly
      acquired or developed multi-family residential properties must comply with
      Title
      II of the Americans with Disabilities Act (the “ADA”) to the extent that such
      properties are “public accommodations” and/or “commercial facilities” as defined
      by the ADA. Compliance with the ADA requires removal of structural barriers
      to
      handicapped access in certain public areas of the properties where such removal
      is “readily achievable.” We intend for our properties to comply in all material
      respects with all present requirements under the ADA and applicable state laws.


24




**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





We
      will
      attempt to acquire properties which comply with the ADA or place the burden
      on
      the seller to ensure compliance with the ADA. We may not be able to acquire
      properties or allocate responsibilities in this manner. Noncompliance with
      the
      ADA could result in the imposition of injunctive relief, monetary penalties
      or,
      in some cases, an award of damages to private litigants. The cost of defending
      against any claims of liability under the ADA or the payment of any fines or
      damages could adversely affect our financial condition and affect cash available
      to return capital and the amount of distributions to stockholders.





The
      Fair
      Housing Act (the FHA) requires, as part of the Fair Housing Amendments Act
      of
      1988, apartment communities first occupied after March 13, 1990 to be accessible
      to the handicapped. Noncompliance with the FHA could result in the imposition
      of
      fines or an award of damages to private litigants. We intend for any of our
      properties that are subject to the FHA to be in compliance with such law. The
      cost of defending against any claims of liability under the FHA or the payment
      of any fines or damages could adversely affect our financial condition.




**Risks
      Related to General Economic Conditions and Terrorism**




***Adverse
      economic conditions may negatively affect our returns and profitability.*** The
      timing, length and severity of any economic slowdown that the nation may
      experience cannot be predicted with certainty. Since we may liquidate within
      seven to ten years after the proceeds from the offering are fully invested,
      there is a risk that depressed economic conditions at that time could cause
      cash
      flow and appreciation upon the sale of our properties, if any, to be
      insufficient to allow sufficient cash remaining after payment of our expenses
      for a significant return on stockholders’ investment.





The
      terrorist attacks of September 11, 2001 on the United States negatively impacted
      the U.S. economy and the U.S. financial markets. Any future terrorist attacks
      and the anticipation of any such attacks, or the consequences of the military
      or
      other response by the U.S. and its allies, may have further adverse impacts
      on
      the U.S. financial markets and the economy and may adversely affect our
      operations and our profitability. It is not possible to predict the severity
      of
      the effect that any of these future events would have on the U.S. financial
      markets and economy.




It
      is
      possible that the economic impact of the terrorist attacks may have an adverse
      effect on the ability of the tenants of our properties to pay rent. In addition,
      insurance on our real estate may become more costly and coverage may be more
      limited due to these events. The instability of the U.S. economy may also reduce
      the number of suitable investment opportunities available to us and may slow
      the
      pace at which those investments are made. In addition, armed hostilities and
      further acts of terrorism may directly impact our properties. These developments
      may subject us to increased risks and, depending on their magnitude, could
      have
      a material adverse effect on our business and stockholders’ investment.




**Tax
      Risks**




***Stockholders’
      investment has various federal income tax risks.*** Although
      the provisions of the Internal Revenue Code relevant to stockholders’ investment
      are generally described in the section of the prospectus titled “Federal Income
      Tax Considerations,” stockholders should consult their own tax advisors
      concerning the effects of federal, state and local income tax law on an
      investment and on stockholders’ individual tax situation.




If
      we
      fail to qualify as a REIT or to maintain our REIT status, our dividends will
      not
      be deductible to us, and our income will be subject to taxation. We intend
      to
      qualify as a REIT under the Internal Revenue Code which will afford us
      significant tax advantages. The requirements for this qualification, however,
      are complex. If we fail to meet these requirements, our dividends will not
      be
      deductible to us and we will have to pay a corporate level tax on our income.
      This would substantially reduce our cash available to pay distributions and
      stockholders’ yield on stockholders’ investment. In addition, tax liability
      might cause us to borrow funds, liquidate some of our investments or take other
      steps which could negatively affect our operating results.





Moreover,
      if our REIT status is terminated because of our failure to meet a technical
      REIT
      test or if we voluntarily revoke our election, we would be disqualified from
      electing treatment as a REIT for the four taxable years following the year
      in
      which REIT status is lost. This could materially and negatively affect
      stockholders’ investment by causing a loss of common stock value.




25


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





***Stockholders
      may have tax liability on distributions that they elect to reinvest in common
      stock.*** If
      stockholders participate in our distribution reinvestment program, such
      stockholders will be deemed to have received, and for income tax purposes will
      be taxed on, the amount reinvested in common stock. As a result, unless a
      stockholder is a tax-exempt entity, its may have to use funds from other sources
      to pay its tax liability on the value of the common stock received.




***The
      opinion of Proskauer Rose LLP regarding our status as a REIT does not guarantee
      our ability to remain a REIT.*** Our
      legal
      counsel, Proskauer Rose LLP, has rendered its opinion that we will qualify
      as a
      REIT, based upon our representations as to the manner in which we are and will
      be owned, invest in assets and operate, among other things. Our qualification
      as
      a REIT depends upon our ability to meet, through investments, actual operating
      results, distributions and satisfaction of specific stockholder rules, the
      various tests imposed by the Internal Revenue Code. Proskauer Rose LLP will
      not
      review these operating results or compliance with the qualification standards.
      We may not satisfy the REIT requirements in the future. Also, this opinion
      represents Proskauer Rose LLP’s legal judgment based on the law in effect as of
      the date of this prospectus and is not binding on the Internal Revenue Service
      or the courts, and could be subject to modification or withdrawal based on
      future legislative, judicial or administrative changes to the federal income
      tax
      laws, any of which could be applied retroactively.





Failure
      to qualify as a REIT or to maintain such qualification could materially and
      negatively impact stockholders’ investment and its yield to stockholders by
      causing a loss of common share value and by substantially reducing our cash
      available to pay distributions.




***If
      the operating partnership fails to maintain its status as a partnership, its
      income may be subject to taxation.*** We
      intend
      to maintain the status of the operating partnership as a partnership for federal
      income tax purposes. However, if the Internal Revenue Service were to
      successfully challenge the status of the operating partnership as a partnership,
      it would be taxable as a corporation. In such event, this would reduce the
      amount of distributions that the operating partnership could make to us. This
      would also result in our losing REIT status, and becoming subject to a corporate
      level tax on our own income. This would substantially reduce our cash available
      to pay distributions and the yield on stockholders’ investment. In addition, if
      any of the partnerships or limited liability companies through which the
      operating partnership owns its properties, in whole or in part, loses its
      characterization as a partnership for federal income tax purposes, it would
      be
      subject to taxation as a corporation, thereby reducing distributions to the
      operating partnership. Such a recharacterization of an underlying property
      owner
      could also threaten our ability to maintain REIT status.




***Even
      REITS are subject to federal and state income taxes.*** Even
      if
      we qualify and maintain our status as a REIT, we may become subject to federal
      income taxes and related state taxes. For example, if we have net income from
      a
“prohibited transaction,” such income will be subject to a 100% tax. We may not
      be able to make 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. This
      will result in our stockholders being treated for tax purposes as though they
      had received their proportionate shares of such retained income.





However,
      to the extent we have already paid income taxes directly on such income, our
      stockholders will also be credited with their proportionate share of such taxes
      already paid by us. 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 the operating partnership or at
      the
      level of the other companies through which we indirectly own our assets.




We
      may
      not be able to continue to satisfy the REIT requirements, and it may cease
      to be
      in our best interests to continue to do so in the future.




***Future
      changes in the income tax laws could adversely affect our profitability.*** Future
      events, such as court decisions, administrative rulings and interpretations
      and
      changes in the tax laws or regulations, including the REIT rules, that change
      or
      modify these provisions could result in treatment under the federal income
      tax
      laws for us and/or our stockholders that differs materially and adversely from
      that described in this prospectus; both for taxable years arising before and
      after such event. Future legislation, administrative interpretations or court
      decisions may be retroactive in effect.




In
      recent
      years, numerous legislative, judicial and administrative changes have been
      made
      to the federal income tax laws applicable to investments in REITs and similar
      entities. Additional changes to tax laws are likely to continue to occur in
      the
      future, and may adversely affect the taxation of our stockholders.




26


**PART
      1, CONTINUED:**


**ITEM
      1A. RISK FACTORS, CONTINUED:**





In
      view
      of the complexity of the tax aspects of the offering, particularly in light
      of
      the fact that some of the tax aspects of the offering will not be the same
      for
      all investors, prospective investors are strongly advised to consult their
      tax
      advisors with specific reference to their own tax situation prior to an
      investment in shares of our common stock.




**Employee
      Benefit Plan Risks**




***An
      investment in our common stock may not satisfy the requirements of ERISA or
      other applicable laws.*** When
      considering an investment in our common 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 or other applicable
      laws should consider whether the investment satisfies the requirements of
      Section 404 of ERISA or 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 common 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 common stock is suitable for any particular plan. Rather, we will accept
      entities as stockholders if an entity otherwise meets the suitability standards.




The
      annual statement of value that we will be sending to stockholders subject to
      ERISA and stockholders is only an estimate and may not reflect the actual value
      of our shares. The annual statement of value will report the value of each
      common share as of the close of our fiscal year. 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 common stock will be deemed to
      be
      $10 until the end of the first year following the completion of this offering.
      Thereafter, our advisor or its affiliates will determine the net asset value
      of
      each share of common stock. Because this is only an estimate, we may
      subsequently revise any annual valuation that is provided. It is possible that:




•
            a
                value included in the annual statement may not actually be realized
                by us
                or by our stockholders upon liquidation;




•
            stockholders
                may not realize that value if they were to attempt to sell their
                common
                stock; or




•
            an
                annual statement of value might not 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 the
                common stock becomes listed for trading on a national stock exchange
                or
                included for quotation on a national market system.





**ITEM
      1B. UNRESOLVED STAFF COMMENTS:**





None
      applicable.





**ITEM
      2. PROPERTIES:**





The
      Company currently has no properties or investments in real estate assets,
      however we have identified the Belz Factory Outlet World in St. Augustine,
      Florida as our first potential acquisition. This $28 million purchase
      transaction is expected to close by April 2006, but there can be no assurance
      that this acquisition will be consummated.





**ITEM
      3. LEGAL PROCEEDINGS:**




From
      time
      to time in the ordinary course of business, the Company may become subject
      to
      legal proceedings, claims or disputes. As of the date hereof, we are not a
      party
      to any material pending legal proceedings.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:**




None.





27


**PART II.**




**ITEM
      5. MARKETS FOR COMMON EQUITY AND RELATED SHAREHOLDER
      MATTERS:**




As
      of
      March 27, 2006, we had approximately 482,616 common shares
      outstanding, held by a total of approximately 157 shareholders. The number
      of shareholders is based on the records of Trust Company of America, which
      serves as our registrar and transfer agent.




There
      currently is no public market for our common shares and we do not expect one
      to
      develop. We currently have no plans to list our shares on a national securities
      exchange or over-the-counter market, or to include our shares for quotation
      on
      any national securities market. Consequently, there is the risk that a
      shareholder may not be able to sell our common shares promptly or at all.




Our
      share
      repurchase program may provide eligible stockholders with limited, interim
      liquidity by enabling them to sell shares back to us after the end of the
      offering period, subject to restrictions and applicable law. A selling
      stockholder must be unaffiliated with our Advisor, and must have beneficially
      held the shares for at least one year prior to offering them for sale to us
      through the share repurchase program. Subject to the limitations described
      in
      the Registration Statement, we will also redeem shares upon the request of
      the
      estate, heir or beneficiary of a deceased stockholder.




The
      prices at which shares may be sold back to us are as follows:




·
            $9.00
                per share during the 24 months following the end of the offering
                period;




·
            $9.50
                per share during the next 12 months; and




·
            $10
                per share thereafter.




Redemption
      of shares, when requested, will be made quarterly on a pro rata basis. Subject
      to funds being available, we will limit the number of shares repurchased during
      any calendar year to one half of one percent (0.5%) of the weighted average
      number of shares outstanding during the prior calendar year. Funding for the
      share repurchase program will come exclusively from proceeds we receive from
      the
      sale of shares under our distribution reinvestment plan and other operating
      funds, if any, as the board of directors, at its sole discretion, may reserve
      for this purpose.





Our
      board
      of directors, at its sole discretion, may choose to terminate the share
      repurchase program after the end of the offering period, or reduce the number
      of
      shares purchased under the program, if it determines that the funds allocated
      to
      the share repurchase program are needed for other purposes, such as the
      acquisition, maintenance or repair of properties, or for use in making a
      declared distribution. A determination by our board of directors to eliminate
      or
      reduce the share repurchase program will require the unanimous affirmative
      vote
      of the independent directors.





In
      order
      for NASD members and their associated persons to have participated in the
      offering and sale of our common shares or to participate in any future offering
      of our common shares, we are required pursuant to NASD Rule 2710(c)(6) to
      disclose in each annual report distributed to our shareholders a per share
      estimated value of the common shares, the method by which it was developed
      and
      the date of the data used to develop the estimated value. In addition, our
      Advisor must prepare annual statements of estimated share values to assist
      fiduciaries of retirement plans subject to the annual reporting requirements
      of
      ERISA in the preparation of their reports relating to an investment in our
      common shares. For these purposes, the estimated value of the shares shall
      be
      deemed to be $10.00 per share as of December 31, 2005. The basis for
      this valuation is the fact that we are currently conducting a public offering
      of
      our common shares at the price of $10.00 per share.





**Dividends**





Federal
      income tax law requires that a REIT distribute annually at least 90% of its
      REIT
      taxable income (excluding any net capital gains). Distributions will be at
      the
      discretion of our board of directors and will depend upon our distributable
      funds, current and projected cash requirements, tax considerations and other
      factors. We
      intend
      to declare dividends to our shareholders as of daily record dates and aggregate
      and pay such dividends quarterly.





No
      dividends were declared or paid by the Company during 2005. On January 26,
      2006,
      our Board of Directors declared a dividend for the two-month period ending
      March
      31, 2006. The dividend will be calculated based on shareholders of record each
      day during this two-month period at a rate of $0.0019178 per day, and will
      equal
      a daily amount that, if paid each day for a 365-day period, would equal a 7.0%
      annualized rate based on a share price of $10.00. The dividend will be paid
      in
      cash in April 2006.


28


**PART II,
      CONTINUED:**





**ITEM
      5. MARKETS FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS,
      CONTINUED:**





**Recent
      Sales of Unregistered Securities**




During
      the period covered by this Annual Report on Form 10-K, we did not sell any
      equity securities that were not registered under the Securities Act of 1933,
      and
      we did not repurchase any of our securities.





**Use
      of Initial Public Offering Proceeds**


****


On
      April
      22, 2005, the Lightstone REIT’s Registration Statement on Form S-11 (File No.
      333-117367), covering a public offering of up to 30,000,000 common shares for
      $10 per share (exclusive of 4,000,000 shares available pursuant to the our
      dividend reinvestment plan, 600,000 shares that could be obtained through the
      exercise of selling dealer warrants when and if issued, and 75,000 shares that
      are reserved for issuance under our stock option plan) was declared effective
      under the Securities Act of 1933. The
      offering commenced on May
      24,
      2005 and is
      ongoing. The Dealer Manager is managing this offering for us.





On
      October 17, 2005, the Company’s filing of a Post-Effective Amendment to its
      Registration Statement was declared effective. The Post-Effective Amendment
      reduced the minimum offering from 1,000,000 shares of common stock to 200,000
      shares of common stock. The information below reflects such
      reduction.





As
      of December 31,
      2005, w e
      had
      reached our minimum offering by receiving subscriptions for 225,966 of
      our
      common shares, representing gross offering proceeds of $ 2,259,662 .
      On
      February 1, 2006, cumulative gross offering proceeds of $2,731,535 were released
      to us from escrow and the gross proceeds were invested in the Operating
      Partnership. As of March 27, 2006, cumulative gross offering proceeds of
      $4,826,158 have been released to us and used for the purchase of a 99.96%
      limited partnership interest in the Operating Partnership. ****





Lightstone
      SLP, LLC intends to purchase special general partner units in the Operating
      Partnership at a cost of $100,000 per unit for each $1,000,000 in offering
      subscriptions. Proceeds from the sale of the special general partnership
      interests will be used to reimburse organizational and offering costs paid
      by
      the Advisor on our behalf. If organizational and offering expenses, including
      the selling commissions and dealer manager fee discussed above, exceed 10%
      of
      the gross proceeds raised in this offering, the excess will be paid by our
      Advisor without recourse to us and will not be exchangeable into special general
      partner interests of our operating partnership.





In
      conjunction with our closing of escrow on February 1, 2006, the Lightstone
      REIT
      offset proceeds of $225,966 from the sale of special general partnership units
      against amounts due to our Advisor. Such offset was in partial satisfaction
      of
      approximately $1.5 million of offering costs incurred by our Advisor on our
      behalf. As of March 27, 2006, cumulative offering costs advanced by our Advisor
      totaled approximately $1.7 million, representing 34.7% of gross offering
      proceeds during the same period. Our Advisor did not allocate any organizational
      costs to the Company as of December 31, 2005. Our Advisor is responsible for
      offering and organizational costs exceeding 10% of the gross offering proceeds
      without recourse to the Company.





As
      of
      March 27, 2006, the Company hasn’t purchased any properties, however we have
      identified the Belz Factory Outlet World in St. Augustine, Florida as our first
      potential acquisition. The $28 million transaction is expected to close by
      April
      2006, but there can be no assurance that this acquisition will be consummated.
      Prime Retail Property Management, LLC, an affiliate of the Lightstone Value
      Plus
      REIT Management LLC, (the “Property Manager”), will serve as our property
      manager.


29


**PART II.
      CONTINUED:**





**ITEM
      6. SELECTED FINANCIAL DATA:**




The
      following selected consolidated and combined financial data are qualified by
      reference to and should be read in conjunction with our Consolidated Financial
      Statements and Notes thereto and “Item 7. Management’s Discussion and
      Analysis of Financial Condition and Results of Operations” below.





**2005**
            
            **2004****(1)****Operating
                Data:**Revenues
            
            $
            —
            
            $
            —Net
                loss before loss allocated to minority interests
            
            $
            (117,571
            )
            $
            —Loss
                allocated to minority interests
            
            $
            1,164
            
            $
            —Net
                loss
            
            $
            (116,407
            )
            $
            —Basic
                and diluted loss per common share
            
            $
            (5.82
            )
            $
            —Dividends
                declared per common share(2)
            
            $
            —
            
            $
            —Weighted
                average common shares outstanding-basic and diluted
            
            
            20,000
            
            
            20,000**Balance
                Sheet Data:**Total
                assets
            
            $
            430,996
            
            $
            205,489Long-term
                obligations
            
            $
            —
            
            $
            —




(1)
            For
                the period from June 8, 2004 (date of inception) through December 31,
                2004 for operating data, and as of December 31, 2004 for balance
                sheet data.(2)
            The
                Company declared its first dividend in January 2006 to shareholders
                of record as of March 31, 2006.





**ITEM 7.     MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:**





*You
      should read the following discussion and analysis together with our consolidated
      financial statements and notes thereto included in this Annual Report on
      Form 10-K. The following information contains forward-looking statements,
      which are subject to risks and uncertainties. Should one or more of these risks
      or uncertainties materialize, actual results may differ materially from those
      expressed or implied by the forward-looking statements. Please see “Special
      Note Regarding Forward-Looking Statements” above for a description of these
      risks and uncertainties.*





**Overview**




Lightstone
      Value Plus Real Estate Investment Trust, Inc. was formed primarily
      for the purpose of engaging in the business of investing in and owning
      commercial and residential real estate properties located throughout the United
      States and Puerto Rico. The Lightstone REIT intends to acquire
      both portfolios and individual properties, with our commercial holdings expected
      to consist primarily of multi-tenanted shopping centers, industrial and office
      properties, and our residential properties expected to consist of “Class B”
multi-family complexes . We
      had no
      real estate investments at December 31, 2005.





Capital
      required for the purchase of real estate and real estate related investments
      will be obtained from the public offering of up to 30,000,000 common shares
      for
      $10 per share, and from any indebtedness that we may incur in connection with
      the acquisition of any real estate and real estate related investments
      thereafter. A Registration Statement on Form S-11 covering our public offering
      was declared effective **** under
      the
      Securities Act of 1933 **** on
      April
      22, 2005. The
      offering commenced on May
      24,
      2005 and is
      ongoing. We
      are
      dependent upon the net proceeds from the offering to conduct our proposed
      activities.





T he
      Company intends to make direct or indirect real estate investments that will
      satisfy our primary investment objectives of preserving capital, paying regular
      cash dividends and achieving appreciation of our assets over the long term.
      The
      ability of our Advisor to identify and execute investment opportunities at
      a
      pace consistent with the capital raised through our offering will directly
      impact the financial performance of the Company.


30


**PART II.
      CONTINUED:**


**ITEM 7.     MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
      CONTINUED:**





**Recent
      Developments and Subsequent Events**





On
      April
      22, 2005, the Company’s Registration Statement on Form S-11 (File No.
      333-117367), covering a public offering of up to 30,000,000 common shares for
      $10 per share (exclusive of 4,000,000 shares available pursuant to our dividend
      reinvestment plan, 600,000 shares that could be obtained through the exercise
      of
      selling dealer warrants when and if issued, and 75,000 shares that are reserved
      for issuance under our stock option plan) was declared effective under the
      Securities Act of 1933. The
      offering commenced on May
      24,
      2005 and is
      ongoing.





On
      October 17, 2005, the Company’s filing of a Post-Effective Amendment to its
      Registration Statement was declared effective. The Post-Effective Amendment
      reduced the minimum offering from 1,000,000 shares of common stock to 200,000
      shares of common stock. As of December 31,
      2005, w e
      had
      reached our minimum offering by receiving subscriptions for 225,966 of
      our
      common shares, representing gross offering proceeds of $ 2,259,662 .





On
      January 26, 2006, our board of directors declared a dividend for the two-month
      period ending March 31, 2006. The dividend will be calculated based on
      shareholders of record each day during this period at a rate of $0.0019178
      per
      day, and will equal a daily amount that, if paid each day for a 365-day period,
      would equal a 7.0 percent annualized rate based on a share price of $10.00.
      The
      dividend will be paid in cash in April 2006. The amount of dividends to be
      distributed to our stockholders in the future will be determined by our Board
      of
      Directors and are dependent on a number of factors, including funds available
      for payment of dividends, our financial condition, capital expenditure
      requirements and annual distribution requirements needed to maintain our status
      as a REIT under the Internal Revenue Code.





On
      February 1, 2006, we announced the commencement of our real estate operations
      upon the release of cumulative gross offering proceeds of $2,731,535 from
      escrow. The gross proceeds were invested in the Operating Partnership. As of
      March 27, 2006, cumulative gross offering proceeds of $4,826,158 have been
      released to us and used for the purchase of a 99.96% limited partnership
      interest in the Operating Partnership.





Also
      on
      February 1, 2006, we announced our first potential property acquisition,
      the Belz Factory Outlet World in St. Augustine, Florida. Once acquired, the
      retail property will be operated by an affiliate of our Sponsor. We expect
      to
      close on this $28 million acquisition by April 2006. Although we believe that
      the acquisition of this property is probable, there can be no assurance that
      this acquisition will be consummated.





**Critical
      Accounting Policies**





***General*** . The
      consolidated financial statements of the Company included in this annual report
      include the accounts of Lightstone REIT and the Operating Partnership (over
      which Lightstone REIT exercises financial and operating control) and the related
      amount of minority interest. All inter-company balances and transactions have
      been eliminated in consolidation.





The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America. The preparation of our financial statements requires us to make
      estimates and judgments about the effects of matters or future events that
      are
      inherently uncertain. These estimates and judgments may affect the reported
      amounts of assets, liabilities, revenues and expenses, and related disclosure
      of
      contingent assets and liabilities.





On
      an
      ongoing basis, we evaluate our estimates, including contingencies and
      litigation. We base these estimates on historical experience and on various
      other assumptions that we believe to be reasonable in the circumstances. These
      estimates form the basis for making judgments about the carrying values of
      assets and liabilities that are not readily apparent from other sources. Actual
      results may differ from these estimates under different assumptions or
      conditions.




To
      assist
      in understanding our results of operations and financial position, we have
      identified our critical accounting policies and discussed them below. These
      accounting policies are most important to the portrayal of our results and
      financial position, either because of the significance of the financial
      statement items to which they relate or because they require our management's
      most difficult, subjective or complex judgments.


31


**PART II.
      CONTINUED:**


**ITEM 7.     MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
      CONTINUED:**




***Revenue
      Recognition and Valuation of Related Receivables.*** Our
      revenue, which will be comprised largely of rental income, will include rents
      that tenants pay in accordance with the terms of their respective leases
      reported on a straight-line basis over the initial term of the lease. Since
      our
      leases may provide for rental increases at specified intervals, straight-line
      basis accounting will require us to record as an asset, and include in revenue,
      unbilled rent that we will only receive if the tenant makes all rent payments
      required through the expiration of the initial term of the lease. Accordingly,
      we must determine, in our judgment, to what extent the unbilled rent receivable
      applicable to each specific tenant is collectible. We will review unbilled
      rent
      receivables 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 collection 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 allowance is increased or the direct write-off
      is recorded and would decrease our total assets and stockholders’ equity.





***Investments
      in Real Estate.*** ****  We
      will
      record investments in real estate at cost and will capitalize improvements
      and
      replacements when they extend the useful life or improve the efficiency of
      the
      asset. We will expense costs of repairs and maintenance as incurred. We will
      compute depreciation using the straight-line method over the estimated useful
      lives of our real estate assets, which we expect will be approximately 40 years
      for buildings and improvements, three to seven years for equipment and fixtures
      and the shorter of the useful life or the remaining lease term for tenant
      improvements and leasehold interests.





We
      will
      be required to make subjective assessments as to the useful lives of our
      properties for purposes of determining the amount of depreciation to record
      on
      an annual basis with respect to our investments in real estate. These
      assessments will have a direct impact on our net income because, if we were
      to
      shorten the expected useful lives of our investments in real estate, we would
      depreciate these investments over fewer years, resulting in more depreciation
      expense and lower net income on an annual basis.




We
      have
      adopted Statement of Financial Accounting Standard No. 144, “Accounting for the
      Impairment or Disposal of Long-Lived Assets,” which we refer to as SFAS 144, and
      which establishes a single accounting model for the impairment or disposal
      of
      long-lived assets including discontinued operations. SFAS 144 requires that
      the
      operations related to properties that have been sold or that we intend to sell
      be presented as discontinued operations in the statement of income for all
      periods presented, and properties we intend to sell be designated as “held for
      sale” on our balance sheet.





When
      circumstances such as adverse market conditions indicate a possible impairment
      of the value of a property, we will review the recoverability of the property’s
      carrying value. The review of recoverability will be based on our estimate
      of
      the future undiscounted cash flows, excluding interest charges, expected to
      result from the property’s use and eventual disposition. Our forecast of these
      cash flows will consider factors such as expected future operating income,
      market and other applicable trends and residual value, as well as the effects
      of
      leasing demand, competition and other factors. If impairment exists due to
      the
      inability to recover the carrying value of a property, an impairment loss will
      be recorded to the extent that the carrying value exceeds the estimated fair
      value of the property.





We
      will
      be required to make subjective assessments as to whether there are impairments
      in the values of our investments in real estate. We will evaluate our ability
      to
      collect both interest and principal related to any real estate related
      investments in which we may invest. If circumstances indicate that such
      investment is impaired, we will reduce the carrying value of the investment
      to
      its net realizable value. Such reduction in value will be reflected as a charge
      to operations in the period in which the determination is made.





***Real
      Estate Purchase Price Allocation.*** **** We
      will
      allocate the purchase price of an acquired property to tangible assets (which
      includes land, buildings and tenant improvements) based on the estimated fair
      values of those tangible assets assuming the building was vacant. We will record
      above-market and below-market in-place lease values for acquired properties
      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)
      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. We will amortize any capitalized above-market lease values as a reduction
      of rental income over the remaining non-cancelable terms of the respective
      leases. We will amortize any capitalized below-market lease values as an
      increase to rental income over the initial term and any fixed-rate renewal
      periods in the respective leases.


32


**PART II.
      CONTINUED:**


**ITEM 7.     MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
      CONTINUED:**





We
      will
      measure the aggregate value of other intangible assets acquired based on the
      difference between (1) the property valued with existing in-place leases
      adjusted to market rental rates and (2) the property valued as if vacant. Our
      estimates of value are expected to be made using methods similar to those used
      by independent appraisers ( *e.g.* ,
      discounted cash flow analysis). Factors we may consider in our analysis include
      an estimate of carrying costs during hypothetical expected lease-up periods
      considering current market conditions and costs to execute similar leases.
      We
      will also consider information obtained about each property as a result of
      our
      pre-acquisition due diligence, marketing and leasing activities in estimating
      the fair value of the tangible and intangible assets acquired. In estimating
      carrying costs, we will also include real estate taxes, insurance and other
      operating expenses and estimates of lost rentals at market rates during the
      expected lease-up periods. We will also estimate costs to execute similar leases
      including leasing commissions, legal and other related expenses to the extent
      that such costs are not already incurred in connection with a new lease
      origination as part of the transaction.





The
      total
      amount of other intangible assets acquired will be further allocated to in-place
      lease values and customer relationship intangible values based on our evaluation
      of the specific characteristics of each tenant’s lease and our overall
      relationship with that respective tenant. Characteristics we will consider
      in
      allocating these values include the nature and extent of our existing business
      relationships with the tenant, growth prospects for developing new business
      with
      the tenant, the tenant’s credit quality and expectations of lease renewals
      (including those existing under the terms of the lease agreement), among other
      factors.




We
      will
      amortize the value of in-place leases to expense over the initial term of the
      respective leases, which we would not expect to exceed 20 years. The value
      of
      customer relationship intangibles will be amortized to expense over the initial
      term and any renewal periods in the respective leases, but in no event will
      the
      amortization period for intangible assets exceed the remaining depreciable
      life
      of the building. Should a tenant terminate its lease, the unamortized portion
      of
      the in-place lease value and customer relationship intangibles would be charged
      to expense.




***Joint
      Venture Investments*** **.** We
      will
      evaluate our joint venture investments in accordance with Financial Accounting
      Standards Board, Interpretation No. 46 (revised December 2003), Consolidation
      of
      Variable Interest Entities, which we refer to as FIN 46R. If we determine that
      the joint venture is a “variable interest entity,” or a “VIE,” and that we are
      the “primary beneficiary” as defined in FIN 46R, we would account for such
      investment as if it were a consolidated subsidiary. For a joint venture
      investment which is not a VIE or in which we are not the primary beneficiary,
      we
      will consider Accounting Principle Board Opinion 18—The Equity Method of
      Accounting for Investments in Common Stock, Statement of Opinion 78-9—Accounting
      for Investments in Real Estate Ventures, and Emerging Issues Task Force Issue
      96-16—Investors Accounting for an Investee When the Investor has the Majority of
      the Voting Interest but the Minority Partners have Certain Approval or Veto
      Rights, to determine the method of accounting for each of our partially-owned
      entities.





In
      accordance with the above pronouncements, we will account for our investments
      in
      partially-owned entities under the equity method when we do not exercise direct
      or indirect control of the entity and our ownership interest is more than 3%
      but
      less than 50%, in the case of a partially-owned limited partnership, or more
      than 20% but less than 50%, in the case of all other partially-owned entities.
      Factors that we will consider in determining whether or not we exercise control
      include substantive participating rights of partners on significant business
      decisions, including dispositions and acquisitions of assets, financing and
      operating and capital budgets, board and management representatives and
      authority and other contractual rights of our partners. To the extent that
      we
      are deemed to control these entities, these entities would be consolidated.





On
      a
      periodic basis we will evaluate whether there are any indicators that the value
      of our investments in partially owned entities are impaired. An investment
      is
      impaired if our estimate of the value of the investment is less than the
      carrying amount. The ultimate realization of our investment in partially owned
      entities is dependent on a number of factors including the performance of that
      entity and market conditions. If we determine that a decline in the value of
      a
      partially owned entity is other than temporary, then we would record an
      impairment charge.





***Accounting
      for Derivative Financial Investments and Hedging Activities .*** We
      will
      account for our derivative and hedging activities, if any, using SFAS 133,
      “Accounting for Derivative Instruments and Hedging Activities,” as amended by
      SFAS 137, “Accounting for Derivative Instruments and Hedging Activities—Deferral
      of the Effective Date of FASB Statement No. 133,” and SFAS 149, “Amendment of
      Statement 133 on Derivative Instruments and Hedging Activities,” which require
      all derivative instruments to be carried at fair value on the balance sheet.


33


**PART II.
      CONTINUED:**


**ITEM 7.     MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
      CONTINUED:**




Derivative
      instruments designated in a hedge relationship to mitigate exposure to
      variability in expected future cash flows, or other types of forecasted
      transactions, will be considered cash flow hedges. We will formally document
      all
      relationships between hedging instruments and hedged items, as well as our
      risk-
      management objective and strategy for undertaking each hedge transaction. We
      will periodically review the effectiveness of each hedging transaction, which
      involves estimating future cash flows. Cash flow hedges will be accounted for
      by
      recording the fair value of the derivative instrument on the balance sheet
      as
      either an asset or liability, with a corresponding amount recorded in other
      comprehensive income within shareholders’ equity. Amounts will be reclassified
      from other comprehensive income to the income statement in the period or periods
      the hedged forecasted transaction affects earnings. Derivative instruments
      designated in a hedge relationship to mitigate exposure to changes in the fair
      value of an asset, liability, or firm commitment attributable to a particular
      risk, such as interest rate risk, will be considered fair value hedges under
      SFAS 133. We are not currently a party to any derivatives
      contracts.





**Impact
      of Recent Accounting Principles**





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued
      Statement no. 153 ("SFAS 153"), "Exchanges of Non-monetary Assets," an amendment
      of APB Opinion No. 29.  SFAS 153 is effective for non-monetary transactions
      occurring in fiscal periods beginning after June 15, 2005.  SFAS 153
      generally will no longer allow non-monetary exchanges to be recorded at book
      value with no gain being recognized.  Non-monetary exchanges will be
      accounted for at fair value, recognizing any gain or loss, if the transactions
      meet a commercial substance criterion and fair value is determinable.  To
      prevent gain recognition on exchanges of real estate when the risks and rewards
      of ownership are not fully transferred, SFAS 153 precludes a gain from being
      recognized if the entity has significant continuing involvement with the real
      estate given up in the exchange.  Adoption is not expected to affect
      us.





In
      December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based
      Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based
      Compensation”.  SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting
      for Stock Issued to Employees” and amends SFAS No. 95, “Statement of Cash
      Flows”.  Generally, the approach in SFAS No. 123(R) is similar to the
      approach described in SFAS No. 123.  However, SFAS No. 123(R) requires all
      share-based payments to employees, including grants of employee stock options,
      to be recognized in the income statement based on their fair values.  Pro
      forma disclosure is no longer an alternative.   Adoption is not
      expected to affect us as no options have been grated under our current
      plan.





In
      March
      2005, the FASB issued Interpretation No. 47 ("FIN 47"), "Accounting for
      Conditional Asset Retirement Obligations, an interpretation of FASB Statement
      No. 143."  FIN 47 refers to a legal obligation to perform an asset
      retirement activity in which the timing and/or method of settlement are
      conditional on a future event that may or may not be within the control of
      the
      entity.  An entity is required to recognize a liability for the fair value
      of a conditional asset retirement obligation if the fair value of the liability
      can be reasonable estimated.  The fair value of a liability for the
      conditional asset retirement obligation should be recognized when incurred,
      generally upon acquisition, construction, or development and through the normal
      operation of the asset.  This interpretation is effective no later than the
      end of fiscal years ending after December 31, 2005.  Adoption is not
      expected to have a material effect on us.





In
      May
      2005, the FASB issued Statement No. 154 ("SFAS 154") "Accounting Changes and
      Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement
      No.
      3."  SFAS 154 changes the requirements for the accounting for and reporting
      of a change in accounting principle.  APB Opinion 20 previously required
      that most voluntary changes in accounting principle be recognized by including
      in net income of the period of the change the cumulative effect of changing
      to
      the new accounting principle.  SFAS 154 requires retrospective application
      to prior periods' financial statements of changes in accounting principle,
      unless it is impracticable to determine either the period-specific effects
      of
      the cumulative effect of the change.  In the event of such impracticality,
      SFAS 154 provides for other means of application.  In the event the Company
      changes accounting principles, it will evaluate the impact of SFAS
      154.





In
      June
      2005, the FASB ratified the EITF's consensus on Issue No. 04-5 "Determining
      Whether a General Partner, or the General Partners as a Group, Controls a
      Limited Partnership or Similar Entity When the Limited Partners Have Certain


Rights."
       This consensus establishes the presumption that general partners in a
      limited partnership control that limited partnership regardless of the extent
      of
      the general partners' ownership interest in the limited partnership.  The
      consensus further establishes that the rights of the limited partners can
      overcome the presumption of control by the general partners, if


34


**PART II.
      CONTINUED:**


**ITEM 7.     MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
      CONTINUED:**





the
      limited partners have either (a) the substantive ability to dissolve (liquidate)
      the limited partnership or otherwise remove the general partners without cause
      or (b) substantive participating rights.  Whether the presumption of
      control is overcome is a matter of judgment based on the facts and
      circumstances, for which the consensus provides additional guidance.  This
      consensus is currently applicable to the Company for new or modified
      partnerships, and will otherwise be applicable to existing partnerships in
      2006.
 This consensus applies to limited partnerships or similar entities, such
      as limited liability companies that have governing provisions that are the
      functional equivalent of a limited partnership.  Adoption is not expected
      to have a material effect on us.





**Inflation**





Our
      long-term leases are expected to contain provisions to mitigate the adverse
      impact of inflation on our operating results. Such provisions will include
      clauses entitling us to receive scheduled base rent increases and base rent
      increases based upon the consumer price index.  In addition, our leases are
      expected to require tenants to pay a negotiated share of operating expenses,
      including maintenance, real estate taxes, insurance and utilities, thereby
      reducing our exposure to increases in cost and operating expenses resulting
      from
      inflation.





**Treatment
      of Management Compensation, Expense Reimbursements and Operating Partnership
      Participation Interest**





Management
      of our operations is outsourced to our Advisor and certain other affiliates
      of
      our Sponsor. Fees related to each of these services are accounted for based
      on
      the nature of such service and the relevant accounting literature. Fees for
      services performed that represent period costs of the Company are expensed
      as
      incurred. Such fees include acquisition fees and asset management fees paid
      to
      our Advisor and property management fees paid to our Property Manager.





Our
      Property Manager may also perform fee-based construction management services
      for
      both our re-development activities and tenant construction projects. These
      fees
      are considered incremental to the construction effort and will be capitalized
      to
      the associated real estate project as incurred in accordance with SFAS 67, *Accounting
      for Costs and Initial Rental Operations of Real Estate
      Projects.* Costs
      incurred for tenant construction will be depreciated over the shorter of their
      useful life or the term of the related lease. Costs related to redevelopment
      activities will be depreciated over the estimated useful life of the associated
      project.





Leasing
      activity at our properties has also been outsourced to our Property Manager.
      Any
      corresponding leasing fees we pay will be capitalized and amortized over the
      life of the related lease in accordance with the provisions of SFAS 91, *Accounting
      for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
      and Initial Direct Costs of Leases.*





Expense
      reimbursements made to both our Advisor and Property Manager will be expensed
      as
      they become payable.





Lightstone
      SLP, LLC, an affiliate of our Sponsor, intends to purchase special general
      partner units in the Operating Partnership. These special general partner units,
      the purchase price of which will be repaid only after stockholders receive
      a
      stated preferred return and their net investment, will entitle
      Lightstone **** SLP,
      LLC **** to
      a
      portion of any regular distributions made by the Operating Partnership. Such
      distributions will always be subordinated until stockholders receive a stated
      preferred return.





We
      have
      recorded a liability representing our obligation to reimburse organizational
      and
      offering costs incurred by our Advisor on our behalf. Organizational costs,
      representing salaries and other internally generated expenses of our Advisor,
      are expensed as incurred. At December 31, 2005, the Company had not incurred
      any
      organizational costs through its Advisor. Third-party offering expenses such
      as
      registration fees, due diligence fees, marketing costs, and professional fees,
      along with selling commissions and dealer manager fees paid to our Dealer
      Manager, have been accounted for as deferred offering expenses on our balance
      sheet at December 31, 2005.


35





**PART II.
      CONTINUED:**


**ITEM 7.     MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
      CONTINUED:**





**Income
      Taxes**





We
      will
      elect to be taxed as a REIT under Sections 856 through 860 of the Internal
      Revenue Code in conjunction with the filing of our 2006 federal tax return.
      In
      order to qualify as a REIT, an entity must meet certain organizational and
      operational requirements, including a requirement to distribute at least 90%
      of
      its annual ordinary taxable income to shareholders. REITs are generally not
      subject to federal income tax on taxable income that they distribute to their
      shareholders. It is our intention to adhere to these requirements and maintain
      our REIT status.





As
      such,
      no provision for federal income taxes has been included in the accompanying
      consolidated financial statements. As a REIT, we still may be subject to certain
      state, local and foreign taxes on our income and property and to federal income
      and excise taxes on our undistributed taxable income.





**Results
      of Operations**





Our
      results of operations are not indicative of those expected in future periods
      as
      we had not commenced our real estate operations as of December 31, 2005. We
      commenced our public offering in May 2005; however, we did not receive and
      accept the minimum offering proceeds of $2,000,000 until February 1, 2006.
      On
      that date, we received the initial proceeds from our offering, acquired an
      interest in the Operating Partnership and commenced operations.





During
      the period from inception (June 8, 2004) to December 31, 2004, we had been
      formed but had not yet commenced real estate operations, as we had not yet
      begun
      our public offering. As a result, we had no material results of operations
      for
      that period.





We
      had a
      net loss of approximately $116,407 for the year ended December 31, 2005 due
      primarily to general and administrative costs ($117,571) incurred subsequent
      to
      the commencement of our offering.





Approximately
      $1,493,488 of offering costs (including commission and dealer manager fee
      payments totaling $180,773) were incurred by our Advisor on our behalf during
      2004 and 2005. Based on gross proceeds of $2,259,662 from our public offering
      as
      of December 31, 2005, our responsibility for the reimbursement of commissions
      and dealer manager fees was limited to $180,773 (or 8% of our gross offering
      proceeds), and our obligation for the reimbursement of organization and
      third-party offering costs was limited to $45,193 (or 2% of the gross offering
      proceeds). Accordingly, we have accrued these costs with an offset of $225,966
      recorded as deferred offering costs at December 31, 2005.





General
      and administrative expenses for the year ended December 31, 2005 totaled
      $117,571. We expect these expenses to increase in the future based on a full
      year of operations as well as increased activity as we make additional real
      estate investments in future periods. No fees of any kind were paid to the
      Advisor for the year ended December 31, 2005.





The
      loss
      allocated to minority interests of approximately $1,164 for the year ended
      December 31, 2005 relates to the interests in the Operating Partnership
      held by our Sponsor.





**Financial
      Condition, Liquidity and Capital Resources**





As
      of
      December 31, 2005, our sole source of funds was $200,000 from the sale of 20,000
      shares to the Advisor on July 6, 2004, and our Advisor’s contribution of $2,000
      to the Operating Partnership, for a total of $202,000 in cash.





We
      are
      dependent upon the net proceeds to be received from our public offering to
      conduct our proposed activities. The capital required to purchase real estate
      investments will be obtained from our offering and from any indebtedness that
      we
      may incur in connection with the acquisition and operations of any real estate
      investments thereafter.





We
      intend
      to utilize leverage in acquiring our properties. The number of different
      properties we will acquire will be affected by numerous factors, including,
      the
      amount of funds available to us. When interest rates on mortgage loans are
      high
      or financing is otherwise unavailable on terms that are satisfactory to us,
      we
      may purchase certain properties for cash with the intention of obtaining a
      mortgage loan for a portion of the purchase price at a later
      time.


36





**PART II.
      CONTINUED:**


**ITEM 7.     MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
      CONTINUED:**





Our
      sources of funds in the future will primarily be the net proceeds of our
      offering, operating cash flows and borrowings. We believe that these cash
      resources will be sufficient to satisfy our cash requirements for the
      foreseeable future, and we do not anticipate a need to raise funds from other
      than these sources within the next twelve months.





We
      currently have no outstanding debt under any financing facilities and have
      not
      identified any sources of debt financing. We
      intend to limit our aggregate long-term permanent borrowings to 75% of the
      aggregate fair market value of all properties unless any excess borrowing is
      approved by a majority of the independent directors and is disclosed to our
      stockholders. We may also incur short-term indebtedness, having a maturity
      of
      two years or less.





Our
      charter provides that the aggregate amount of borrowing, both secured and
      unsecured, may not exceed 300% of net assets in the absence of a satisfactory
      showing that a higher level is appropriate, the approval of our board of
      directors and disclosure to stockholders. Net assets means our total assets,
      other than intangibles, at cost before deducting depreciation or other non-cash
      reserves less our total liabilities, calculated at least quarterly on a basis
      consistently applied. Any excess in borrowing over such 300% of net assets
      level
      must be approved by a majority of our independent directors and disclosed to
      our
      stockholders in our next quarterly report to stockholders, along with
      justification for such excess.




Borrowings
      may consist of single-property mortgages as well as mortgages
      cross-collateralized by a pool of properties. Such mortgages may be put in
      place
      either at the time we acquire a property or subsequent to our purchasing a
      property for cash. In addition, we may acquire properties that are subject
      to
      existing indebtedness where we choose to assume the existing mortgages.
      Generally, though not exclusively, we intend to seek to encumber our properties
      with debt which will be on a non-recourse basis. This means that a lender’s
      rights on default will generally be limited to foreclosing on the property.
      However, we may, at our discretion, secure recourse financing or provide a
      guarantee to lenders if we believe this may result in more favorable terms.
      When
      we give a guaranty for a property owning entity, we will be responsible to
      the
      lender for the satisfaction of the indebtedness if it is not paid by the
      property owning entity.





We
      intend
      to obtain level payment financing, meaning that the amount of debt service
      payable would be substantially the same each year. Accordingly, we expect that
      some of the mortgages on our property will provide for fixed interest rates.
      However, we expect that most of the mortgages on our properties will provide
      for
      a so-called “balloon” payment and that certain of our mortgages will provide for
      variable interest rates. Any mortgages secured by a property will comply with
      the restrictions set forth by the Commissioner of Corporations of the State
      of
      California.




We
      may
      also obtain lines of credit to be used to acquire properties. These lines of
      credit will be at prevailing market terms and will be repaid from offering
      proceeds, proceeds from the sale or refinancing of properties, working capital
      or permanent financing. Our Sponsor or its affiliates may guarantee the lines
      of
      credit although they will not be obligated to do so. We may draw upon the lines
      of credit to acquire properties pending our receipt of proceeds from our initial
      public offering. We expect that such properties may be purchased by our
      Sponsor’s affiliates on our behalf, in our name, in order to avoid the
      imposition of a transfer tax upon a transfer of such properties to us.





In
      addition to making investments in accordance with our investment objectives,
      we
      expect to use our capital resources to make certain payments to our Advisor,
      our
      Dealer Manager, and our Property Manager during the various phases of our
      organization and operation. During the organizational and offering stage, these
      payments will include payments to our Dealer Manager for selling commissions
      and
      the dealer manager fee, and payments to our Advisor for the reimbursement of
      organization and offering costs. During the acquisition and development stage,
      these payments will include asset acquisition fees and asset management fees,
      and the reimbursement of acquisition related expenses to our Advisor. During
      the
      operational stage, we will pay our Property Manager a property management fee
      and our Advisor an asset management fee. We will also reimburse our Advisor
      and
      its affiliates for actual expenses it incurs for administrative and other
      services provided to us. Additionally, the Operating Partnership may be required
      to make distributions to Lightstone SLP, LLC, an affiliate of the Advisor,





No
      asset
      management or acquisition fees were paid or owed to the Advisor for the year
      ended December 31, 2005. As of December 31, 2005, approximately
      $309,000 was payable to our Advisor for reimbursement of commissions and dealer
      manager fees ($181,000), offering expenses ($45,000), expenses incurred in
      connection with our administration and ongoing operations ($80,000), and
      advances of working capital for use by the Company ($3,000).


37


**PART II.
      CONTINUED:**





**ITEM 7A.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:**





Market
      risk includes risks that arise from changes in interest rates, foreign currency
      exchange rates, commodity prices, equity prices and other market changes that
      affect market sensitive instruments. In pursuing our business plan, we expect
      that the primary market risk to which we will be exposed is interest rate risk.





We
      may be
      exposed to the effects of interest rate changes primarily as a result of
      long-term debt used to maintain liquidity and fund expansion of our real estate
      investment portfolio and operations. Our interest rate risk management
      objectives will be to monitor and manage the impact of interest rate changes
      on
      earnings and cash flows by considering certain derivative financial instruments
      such as interest rate swaps and caps in order to mitigate our interest rate
      risk
      on variable rate debt. We will not enter into derivative or interest rate
      transactions for speculative purposes.




In
      addition to changes in interest rates, the value of our real estate is subject
      to fluctuations based on changes in the real estate capital markets, market
      rental rates for office space, local, regional and national economic conditions
      and changes in the creditworthiness of tenants. All of these factors may also
      affect our ability to refinance our debt if necessary.


38




**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**




**Lightstone
      Value Plus Real Estate Investment Trust, Inc.**


**(a
      Maryland corporation)**





**Index**PageReport
                of Independent Registered Public Accounting Firm on Consolidated
                Financial
                Statements
            40Financial
                Statements:Consolidated
                Balance Sheets December 31, 2005 and 2004
            42Consolidated
                Statements of Operations for the year ended December 31, 2005 and
                the
                period June 8, 2004 (date of inceptions) to December 31,
                2004
            43Consolidated
                Statements of Stockholder’s Equity for the year ended December 31, 2005
                and the period from June 8, 2004 (date of inception) to December
                31,
                2004
            44Consolidated
                Statements of Cash Flows for the year ended December 31, 2005 and
                the
                period from June 8, 2004 (date of inception) to December 31,
                2004
            45Notes
                to Consolidated Financial Statements
            46





Schedules
      not filed:





All
      schedules have been omitted as the required information is not applicable or
      the
      information is presented in the financial statements or related
      notes.





39





**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**Report
      of Independent Registered Public Accounting Firm**




The
      Board
      of Directors and Stockholders


Lightstone
      Value Plus Real Estate Investment Trust, Inc.





We
      have
      audited the accompanying consolidated balance sheet of Lightstone Value Plus
      Real Estate Investment Trust, Inc. and Subsidiary as of December 31, 2005,
      and
      the related consolidated statements of operations, stockholder’s equity and cash
      flows for the year ended December 31, 2005. These 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
      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 opinion. An audit 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 consolidated financial position of Lightstone
      Value Plus Real Estate Investment Trust, Inc. and Subsidiary as of December
      31,
      2005 and the results of their operations and their cash flows for the year
      ended
      December 31, 2005, in conformity with accounting principles generally accepted
      in the United States of America.






Amper, Politziner & Mattia,
              P.C.




March
      17,
      2006


Edison,
      New Jersey





40


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**Report
      of Independent Registered Public Accounting Firm**




The
      Stockholder


Lightstone
      Value Plus Real Estate Investment Trust, Inc.:





We
      have
      audited the accompanying balance sheet of Lightstone Value Plus Real Estate
      Investment Trust, Inc. (the Company) as of December 31, 2004, and the related
      statements of operations, stockholder’s equity and cash flows for the period
      from June 8, 2004 (Date of Inception) to December 31, 2004. 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.  An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes 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 financial statements referred to above present fairly, in all
      material respects, the financial position of Lightstone Value Plus Real Estate
      Investment Trust, Inc. as of December 31, 2004 and the results of its operations
      and its cash flows for the period from June 8, 2004 (Date of Inception) to
      December 31, 2004, in conformity with accounting principles generally accepted
      in the United States of America.





Kamler, Lewis & Norman
              LLP





Great
      Neck, New York


February
      14, 2005





41


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**As
      of December 31, 2005 and 2004**




**December
                  31, 2005**
              
              **December 31, 2004*****Assets***Cash
              
              $
              205,030
              
              $
              205,489Deferred
                  offering costs
              
              
              225,966
              
              
              -430,996
              
              
              205,489***Liabilities
                  and Stockholder's Equity***Accounts
                  payable and accrued expenses
              
              $
              37,511
              
              $
              -Due
                  to affiliate
              
              
              309,056
              
              
              3,489346,567
              
              
              3,489Minority
                  interest
              
              
              836
              
              
              2,000Stockholder’s
                  equity:Preferred
                  shares, 10,000,000 shares authorized, none outstanding
              
              
              -
              
              
              -Common
                  stock, $.01 par value; 60,000,000 shares authorized, 20,000 shares
                  issued
                  and outstanding
              
              
              200
              
              
              200Additional
                  paid-in-capital
              
              
              199,800
              
              
              199,800Accumulated
                  deficit
              
              
              (116,407
              )
              
              -Total
                  stockholder’s equity
              
              
              83,593
              
              
              200,000**Total
                  Liabilities and Stockholder’s Equity**
              
              $
              430,996
              
              $
              205,489




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




42


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**For
      the Year ended December 31, 2005 and**


**for
      the Period from June 8, 2004 (date of inception) to December 31,
      2004**


**Year
                  Ended December 31, 2005**
              
              **Period
                  from June 8, 2004 (date of inception) to December 31,
                  2004**Revenues
              
              $
              -
              
              $
              -Expenses:General
                  and administrative costs
              
              
              117,571
              
              
              -Operating
                  loss
              
              
              (117,571
              )
              
              -Loss
                  allocated to minority interest
              
              
              1,164
              
              
              -Net
                  loss
              
              $
              (116,407
              )
              $
              -Loss
                  per common share, basic and diluted
              
              $
              (5.82
              )
              $
              -Weighted
                  average number of common shares outstanding
              
              
              20,000
              
              
              20,000





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


43


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDER’S EQUITY**


**For
      the Year ended December 31, 2005 and**


**for
      the Period from June 8, 2004 (date of inception) to December 31,
      2004**


**Preferred
                  Shares**
              
              **Common
                  Shares****Additional**
              
              
              
              **Total****Preferred**
              
              
              
              **Common**
              
              
              
              **Paid-In**
              
              **Accumulated**
              
              **Shareholder's****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **Equity****BALANCE,
                  June 8, 2004 (date of inception)**
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Issuance
                  of common shares
              
              
              -
              
              
              -
              
              
              20,000
              
              
              200
              
              
              199,800
              
              
              -
              
              
              200,000Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**BALANCE,
                  December 31, 2004**
              
              
              -
              
              
              -
              
              
              20,000
              
              
              200
              
              
              199,800
              
              
              -
              
              
              200,000Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (116,407
              )
              
              (116,407
              )**BALANCE,
                  December 31, 2005**
              
              
              -
              
              $
              -
              
              
              20,000
              
              $
              200
              
              $
              199,800
              
              $
              (116,407
              )
              $
              83,593


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





44


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
      the Year ended December 31, 2005 and**


**for
      the Period from June 8, 2004 (date of inception) to December 31,
      2004**


**Year
                  Ended December 31, 2005**
              
              **Period
                  from June 8, 2004 (date of inception) to December 31,
                  2004****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (116,407
              )
              $
              -Loss
                  allocated to minority interests
              
              
              (1,164
              )
              
              -Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Changes
                  in assets and liabilities:Increase
                  in accounts payable and accrued expenses
              
              
              37,511
              
              
              -Increase
                  in due to affiliates, net
              
              
              303,567
              
              
              5,489Net
                  provided by operating activities
              
              
              223,507
              
              
              5,489**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from issuance of common stock
              
              
              -
              
              
              200,000Offering
                  costs
              
              
              (225,966
              )
              
              -Net
                  cash (used in) provided by financing activities
              
              
              (225,966
              )
              
              200,000**Net
                  change in cash**
              
              
              (2,459
              )
              
              205,489**Cash,
                  beginning of period**
              
              
              205,489
              
              
              -**Cash,
                  end of period**
              
              $
              203,030
              
              $
              205,489**SUPPLEMENTAL
                  FINANCING CASH FLOW DATA:**Exchange
                  of due to affiliate for minority interest in operating
                  partnership
              
              $
              2,000
              
              $
              -





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


45





**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





**1.** ***Organization*** ****




Lightstone
      Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (“Lightstone
      REIT” and, together with the Operating Partnership (as defined below), the
“Company”) was
      formed on June 8, 2004 and intends
      to qualify as a real estate investment trust (“REIT”). The Company was formed primarily
      for the purpose of engaging in the business of investing in and owning
      commercial and residential real estate properties located throughout the United
      States and Puerto Rico.





The Lightstone
      REIT is
      structured as an umbrella partnership real estate investment trust, or UPREIT,
      and substantially all of the Lightstone
      REIT ’s
      current and future business is and will be conducted through Lightstone
      Value Plus REIT, L.P., a Delaware limited partnership formed on July
      12,
      2004  (the
      “Operating Partnership”). The
      Lightstone REIT 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 Company’s board of directors.





The
      Company intends to sell a maximum of 30 million common shares, at a price of
      $10
      per share (exclusive of 4 million shares available pursuant to the Company’s
      dividend reinvestment plan, 600,000 shares that could be obtained through the
      exercise of selling dealer warrants when and if issued and 75,000 shares that
      are reserved for issuance under the Company’s stock option plan). The Company’s
      Registration Statement on Form S-11 (the “Registration Statement”) was declared
      effective under the Securities Act of 1933 on April 22, 2005, and on May
      24,
      2005 ,
      the
      Lightstone REIT began offering its common shares for sale to the public. Lightstone
      Securities, LLC (the “Dealer Manager”), an affiliate of the Sponsor, is serving
      as the dealer manager of the Company’s public offering (the “Offering”).





The
      Company sold 20,000 shares to the Advisor on July 6, 2004, for $10 per share.
      The Company invested the proceeds from this sale in the Operating Partnership,
      and as a result, held a 99.01% limited partnership interest at December 31,
      2004
      and 2005, respectively. The Advisor also contributed $2,000 to the Operating
      Partnership in exchange for 200 limited partner units in the Operating
      Partnership. The limited partner has the right to convert operating partnership
      units into cash or, at the option of the Company, an equal number of common
      shares of the Company, as allowed by the limited partnership agreement.





A
      Post-Effective Amendment to the Lightstone REIT’s Registration Statement was
      declared effective on October 17, 2005. The Post-Effective Amendment reduced
      the
      minimum offering from 1 million shares of common stock to 200,000 shares of
      common stock. As of December 31,
      2005, the Company had
      reached its minimum offering by receiving subscriptions for approximately 226,000 of
      its
      common shares, representing gross offering proceeds of approximately
      $ 2.3
      million .
      On
      February 1, 2006, cumulative gross offering proceeds of approximately $2.7
      million were released to the Company from escrow and invested in the Operating
      Partnership.





As
      of
      March 27, 2006, cumulative gross offering proceeds of $4,826,158 have been
      released to the Lightstone REIT and used for the purchase of a 99.96% limited
      partnership interest in the Operating Partnership. The Company expects that
      its
      ownership percentage in the Operating Partnership will remain significant as
      it
      plans to continue to invest all net proceeds from the Offering in the Operating
      Partnership.





Lightstone
      SLP, LLC, an affiliate of the Advisor, intends to purchase special general
      partner units in the Operating Partnership at a cost of $100,000 per unit for
      each $1.0 million in offering subscriptions. Proceeds from the sale of the
      special general partnership interests will be used to reimburse organizational
      and offering costs paid by the Advisor on the Company’s behalf.





46


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





**1.** ***Organization
      (continued):***





In
      conjunction with its closing of escrow on February 1, 2006, the Lightstone
      REIT
      offset proceeds of approximately $226,000 from the sale of special general
      partnership units against amounts due to the Advisor. Such offset was in partial
      satisfaction of approximately $1.5 million of offering costs incurred by the
      Advisor on the Company’s behalf. As of March 27, 2006, cumulative offering costs
      advanced by the Advisor totaled approximately $1.7 million, representing 34.7%
      of gross offering proceeds during the same period. The Advisor did not allocate
      any organizational costs to the Company as of December 31, 2005. The Advisor
      is
      responsible for offering and organizational costs exceeding 10% of the gross
      offering proceeds without recourse to the Company.





Through
      its Operating Partnership, the Company will seek to acquire and operate
      commercial and residential properties, principally in the United States. All
      such properties may be acquired and operated by the Company alone or jointly
      with another party. As of March 27, 2006, the Company hasn’t purchased any
      properties, however it has identified the Belz Factory Outlet World in St.
      Augustine, Florida as its first potential acquisition. The $28 million
      transaction is expected to close by April 2006, but there can be no assurance
      that this acquisition will be consummated. Prime Retail Property Management,
      LLC, an affiliate of Lightstone Value Plus REIT Management LLC, (the “Property
      Manager”), will serve as the property manager.




The
      Company’s Advisor, Property Manager and Dealer Manager are each related parties.
      Each of these entities will receive compensation and fees for services related
      to the offering and for the investment and management of the Company’s assets.
      These entities will receive fees during the offering, acquisition, operational
      and liquidation stages. The compensation levels during the offering, acquisition
      and operational stages are based on percentages of the offering proceeds sold,
      the cost of acquired properties and the annual revenue earned from such
      properties and other such fees outlined in each of the respective agreements.
      (See Note 4, Related Party Transactions).


****


**2.** ***Summary
      of Significant Accounting Policies*** ****




***Principles
      of Consolidation***


The
      2005
      financial statements include the accounts of the Lightstone REIT and Operating
      Partnership. All inter-company balances and transactions have been eliminated
      in
      consolidation. The 2004 financial statements include the accounts of the
      Lightstone REIT.





***Use
      of Estimates***





The
      presentation of the financial statements in conformity with accounting
      principles generally accepted in the United States of America requires the
      Company to make estimates and assumptions that affect the amounts of assets
      and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements. Actual results could differ from those
      estimates.




***Cash
      Equivalents***





Cash
      and
      cash equivalents include cash in banks and money market funds, and temporary
      investments in short-term instruments with original maturities equal to or
      less
      than three months.





***Deferred
      Offering Costs***





Subject
      to limitations in terms of the maximum percentage of costs to offering proceeds
      that may be incurred by the Company, third-party offering expenses such as
      registration fees, due diligence fees, marketing costs, and professional fees,
      along with selling commissions and dealer manager fees paid to the Dealer
      Manager, are accounted for as deferred offering expenses before being taken
      as a
      reduction against additional paid-in capital (“APIC”) as offering proceeds are
      released to the Company.





47


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





**2.** ***Summary
      of Significant Accounting Policies (continued):***





***Deferred
      Offering Costs (continued):***





The
      Advisor, on the Company’s behalf, incurred approximately $1.5 million of
      offering costs, including commission and dealer manager fees of approximately
      $180,000 since Inception. Based on gross proceeds of approximately $2.3 million
      from its public offering as of December 31, 2005, the Company’s responsibility
      for the reimbursement of commissions and dealer manager fees was limited to
      approximately $181,000 (or 8% of our gross offering proceeds), and its
      obligation for organization and third-party offering costs was limited to
      approximately $45,000 (or 2% of the gross offering proceeds). Accordingly,
      an
      accrual of approximately $226,000 for deferred offering costs has been recorded
      at December 31, 2005. These deferred offering costs will be released
      against offering proceeds when received.





***Due
      to Affiliate***





As
      of
      December 31, 2005, approximately $309,000 was payable to the Advisor for
      reimbursement of commissions and dealer manager fees ($181,000), offering
      expenses ($45,000), expenses incurred in connection with the Company’s
      administration and ongoing operations ($80,000), and advances of working capital
      ($3,000).





***Fair
      Value of Financial Instruments***





Disclosure
      about fair value of financial instruments is based on pertinent information
      available to management. Considerable judgment is necessary to interpret market
      data and develop estimated fair values. Accordingly, the estimates presented
      herein are not necessarily indicative of the amounts we could obtain on
      disposition of the financial instruments. The use of different market
      assumptions and/or estimation methodologies may have a material effect on the
      estimated fair value amounts.





As
      of
      December 31, 2005 and 2004, management estimates that the carrying value of
      cash, accounts payable and accrued expenses are recorded at amounts which
      reasonably approximate fair value.





***Reportable
      Segments***





FASB
      Statement of Financial Accounting Standards (“SFAS”) No. 131, *Disclosures
      About Segments of Enterprise and Related Information,* establishes standards for reporting financial and descriptive information
      about an enterprise’s reportable segments. Management has determined that the
      Company has no reportable segments at December 31, 2005.





***General
      and Administrative Expenses***





General
      and administrative expenses consisted primarily of insurance premiums, fees
      for
      the Company’s independent directors and professional fees, totaling $117,571,
      for the year ended December 31, 2005. No General and administrative costs
      were incurred for the period ended December 31, 2004. We expect these expenses
      to increase in the future based on a full year of operations as well as
      increased activity as we make additional real estate investments in future
      periods. No fees of any kind were paid to the Advisor for the year ended
      December 31, 2005.





***Per
      Share Data***





Loss
      per
      basic common share is calculated by dividing the net loss by the weighted
      average number of common shares outstanding during such period. Diluted loss
      per
      common share equals basic loss per common share as there were no potentially
      dilutive common shares for the year ended December 31, 2005, or for the
      period from Inception through December 31, 2004.





48




**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





**2.** ***Summary
      of Significant Accounting Policies (continued):***





***Income
      Taxes***





For
      the
      year ending December 31, 2006, the Company intends to make an election to be
      taxed as a real estate investment trust (a “REIT”), under Sections 856 through
      860 of the Internal Revenue Code of 1986, as amended (the “Code”) and intends to
      be taxed as such beginning with its taxable year ending December 31, 2006.
      To
      qualify as a REIT, the Company must meet certain organizational and operational
      requirements, including a requirement to distribute at least 90% of its 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 grants 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 such a manner so that the Company will remain qualified
      as
      a REIT for federal income tax purposes.





***Newly
      Adopted Accounting Pronouncements***





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued
      Statement no. 153 ("SFAS 153"), "Exchanges of Non-monetary Assets," an amendment
      of APB Opinion No. 29.  SFAS 153 is effective for non-monetary transactions
      occurring in fiscal periods beginning after June 15, 2005.  SFAS 153
      generally will no longer allow non-monetary exchanges to be recorded at book
      value with no gain being recognized.  Non-monetary exchanges will be
      accounted for at fair value, recognizing any gain or loss, if the transactions
      meet a commercial substance criterion and fair value is determinable.  To
      prevent gain recognition on exchanges of real estate when the risks and rewards
      of ownership are not fully transferred, SFAS 153 precludes a gain from being
      recognized if the entity has significant continuing involvement with the real
      estate given up in the exchange.  Adoption is not expected to affect the
      Company.





In
      December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based
      Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based
      Compensation”.  SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting
      for Stock Issued to Employees” and amends SFAS No. 95, “Statement of Cash
      Flows”.  Generally, the approach in SFAS No. 123(R) is similar to the
      approach described in SFAS No. 123.  However, SFAS No. 123(R) requires all
      share-based p ayments
      to employees, including grants of employee stock options, to be recognized
      in
      the income statement based on their fair values.  Pro forma disclosure is
      no longer an alternative.   Adoption is not expected to affect the
      Company as no options have been granted under our current plan.





In
      March
      2005, the FASB issued Interpretation No. 47 ("FIN 47"), "Accounting for
      Conditional Asset Retirement Obligations, an interpretation of FASB Statement
      No. 143."  FIN 47 refers to a legal obligation to perform an asset
      retirement activity in which the timing and/or method of settlement are
      conditional on a future event that may or may not be within the control of
      the
      entity.  An entity is required to recognize a liability for the fair value
      of a conditional asset retirement obligation if the fair value of the liability
      can be reasonable estimated.  The fair value of a liability for the
      conditional asset retirement obligation should be recognized when incurred,
      generally upon acquisition, construction, or development and through the normal
      operation of the asset.  This interpretation is effective no later than the
      end of fiscal years ending after December 31, 2005.  Adoption is not
      expected to have a material effect on the Company.





In
      May
      2005, the FASB issued Statement No. 154 ("SFAS 154") "Accounting Changes and
      Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement
      No.
      3."  SFAS 154 changes the requirements for the accounting


49


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





**2.** ***Summary
      of Significant Accounting Policies (continued):***





***Newly
      Adopted Accounting Pronouncements (continued):***





for
      and
      reporting of a change in accounting principle.  APB Opinion 20 previously
      required that most voluntary changes in accounting principle be recognized
      by
      including in net income of the period of the change the cumulative effect of
      changing to the new accounting principle.  SFAS 154 requires retrospective
      application to prior periods' financial statements of changes in accounting
      principle, unless it is impracticable to determine either the period-specific
      effects of the cumulative effect of the change.  In the event of such
      impracticality, SFAS 154 provides for other means of application.  In the
      event the Company changes accounting principles, it will evaluate the impact
      of
      SFAS 154.





In
      June
      2005, the FASB ratified the EITF's consensus on Issue No. 04-5 "Determining
      Whether a General Partner, or the General Partners as a Group, Controls a
      Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights."
       This consensus establishes the presumption that general partners in a
      limited partnership control that limited partnership regardless of the extent
      of
      the general partners' ownership interest in the limited partnership.  The
      consensus further establishes that the rights of the limited partners can
      overcome the presumption of control by the general partners, if the limited
      partners have either (a) the substantive ability to dissolve (liquidate) the
      limited partnership or otherwise remove the general partners without cause
      or
      (b) substantive participating rights.  Whether the presumption of control
      is overcome is a matter of judgment based on the facts and circumstances, for
      which the consensus provides additional guidance.  This consensus is
      currently applicable to the Company for new or modified partnerships, and will
      otherwise be applicable to existing partnerships in 2006.  This consensus
      applies to limited partnerships or similar entities, such as limited liability
      companies that have governing provisions that are the functional equivalent
      of a
      limited partnership.  Adoption is not expected to have a material effect on
      the Company.





***3.
      Stockholder’s Equity***




***Preferred
      Shares***





Shares
      of
      preferred stock may be issued in the future in one or more series as authorized
      by the Company’s board of directors. Prior to the issuance of shares of any
      series, the board of directors is required by the Company’s charter to fix the
      number of shares to be included in each series and 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 series. Because the Company’s board of directors has the
      power to establish the preferences, powers and rights of each series of
      preferred stock, it may provide the holders of any series of preferred stock
      with preferences, powers and rights, voting or otherwise, senior to the rights
      of holders of our common stock. The issuance of preferred stock could have
      the
      effect of delaying, deferring or preventing a change in control of the Company,
      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
      for holders of the Company’s common stock. As
      of
      December 31, 2005 and 2004, the Company had no outstanding preferred
      shares.




***Common
      Shares***





All
      of
      the common stock being offered by the Company will be duly authorized, fully
      paid and nonassessable. Subject to the preferential rights of any other class
      or
      series of stock and to the provisions of its charter regarding the restriction
      on the ownership and transfer of shares of our stock, holders of the Company’s
      common stock will be entitled to receive distributions if authorized by the
      board of directors and to share ratably in the Company’s assets available for
      distribution to the stockholders in the event of a liquidation, dissolution
      or
      winding-up.




Each
      outstanding share of the Company’s common stock entitles the holder to one vote
      on all matters submitted to a vote of stockholders, including the election
      of
      directors. There is no cumulative voting in the election of directors, which
      means that the holders of a majority of the outstanding common stock can elect
      all of the directors then standing for election, and the holders of the
      remaining common stock will not be able to elect any directors.




50


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





***3.
      Stockholder’s Equity (continued):***





***Common
      Shares (continued):***





Holders
      of the Company’s common stock have no conversion, sinking fund, redemption or
      exchange rights, and have no preemptive rights to subscribe for any of its
      securities. Maryland law provides that a stockholder has appraisal rights in
      connection with some transactions. However, the Company’s charter provides that
      the holders of its stock do not have appraisal rights unless a majority of
      the
      board of directors determines that such rights shall apply. Shares of the
      Company’s common stock have equal dividend, distribution, liquidation and other
      rights.




Under
      its
      charter, the Company cannot make some material changes to its business form
      or
      operations without the approval of stockholders holding at least a majority
      of
      the shares of our stock entitled to vote on the matter. These include (1)
      amendment of its charter, (2) its liquidation or dissolution, (3) its
      reorganization, and (4) its merger, consolidation or the sale or other
      disposition of its assets. Share exchanges in which the Company is the acquirer,
      however, do not require stockholder approval. The Company
      had 20,000 shares of common stock outstanding as of December 31, 2005 and
      2004.





***Equity
      Compensation Plan***




The
      Company has adopted a stock option plan under which its independent directors
      are eligible to receive annual nondiscretionary awards of nonqualified stock
      options. The Company’s stock option plan is designed to enhance the Lightstone
      REIT’s profitability and value for the benefit of stockholders by enabling the
      Company to offer independent directors stock-based incentives, thereby creating
      a means to raise the level of equity ownership by such individuals in order
      to
      attract, retain and reward such individuals and strengthen the mutuality of
      interests between such individuals and the Company’s stockholders.




The
      Company has authorized and reserved 75,000 shares of its common stock for
      issuance under the stock option plan. The board of directors may make
      appropriate adjustments to the number of shares available for awards and the
      terms of outstanding awards under the stock option plan to reflect any change
      in
      the Company’s capital structure or business, stock dividend, stock split,
      recapitalization, reorganization, merger, consolidation or sale of all or
      substantially all of its assets.




The
      Lightstone REIT’s stock option plan provides for the automatic grant of a
      nonqualified stock option to each of the Company’s independent directors,
      without any further action by the board of directors or the stockholders, to
      purchase 3,000 shares of the Company’s common stock on the date of each annual
      stockholders meeting. The exercise price for all stock options granted under
      the
      stock option plan will be fixed at $10 per share until the termination of the
      Company’s initial public offering, and thereafter the exercise price for stock
      options granted to the independent directors will be equal to the fair market
      value of a share on the last business day preceding the annual meeting of
      stockholders. The term of each such option will be 10 years. Options granted
      to
      non-employee directors will vest and become exercisable on the second
      anniversary of the date of grant, provided that the independent director is
      a
      director on the board of directors on that date. No options have been granted
      under the Company’s current plan.




Notwithstanding
      any other provisions of the Company’s stock option plan to the contrary, no
      stock option issued pursuant thereto may be exercised if such exercise would
      jeopardize the Lightstone REIT’s status as a REIT under the Internal Revenue
      Code.





51


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





***3.
      Stockholder’s Equity (continued):***





***Dividends***





On
      January 26, 2006, the Company’s board of directors declared a dividend for the
      two-month period ending March 31, 2006. The dividend will be calculated based
      on
      shareholders of record each day during this period at a rate of $0.0019178
      per
      day, and will equal a daily amount that, if paid each day for a 365-day period,
      would equal a 7.0 percent annualized rate based on a share price of $10.00.
      The
      dividend will be paid in cash in April 2006. The amount of dividends to be
      distributed to stockholders in the future will be determined by the Board of
      Directors and are dependent on a number of factors, including funds available
      for payment of dividends, our financial condition, capital expenditure
      requirements and annual distribution requirements needed to maintain our status
      as a REIT under the Internal Revenue Code.





**4.** ***Related
      Party Transactions*** ****




The
      Company has agreements with the Dealer Manager, Advisor and Property Manager
      to
      pay certain fees, as follows, in exchange for services performed by these
      entities and other affiliated entities. The Company’s ability to secure
      financing and subsequent real estate operations are dependent upon its Advisor,
      Property Manager, Dealer Manager and their affiliates to perform such services
      as provided in these agreements.





**Fees**
            
            **Amount**Selling
                Commission
            
            The
                Dealer Manager will be paid up to 7% of the gross offering proceeds
                before
                reallowance of commissions earned by participating broker-dealers.
                Selling
                commissions are expected to be approximately $21,000,000 if the maximum
                offering of 30 million shares is sold.Dealer
                Management Fee
            
            The
                Dealer Manager will be paid up to 1% of gross offering proceeds before
                reallowance to participating broker-dealers. The estimated dealer
                management fee is expected to be approximately $3,000,000 if the
                maximum
                offering of 30 million shares is sold.Soliciting
                Dealer Warrants
            
            The
                Dealer Manager may buy up to 600,000 warrants at a purchase price
                of
                $.0008 per warrant. Each warrant will be exercisable for one share
                of the
                company’s common stock at an exercise price of $12.00 per
                share.Reimbursement
                of Offering Expenses
            
            Reimbursement
                of all offering costs, including the commissions and dealer management
                fees indicated above, are estimated at approximately $30 million
                if the
                maximum offering of 30 million shares is sold. The Company will sell
                a
                special general partnership interest in the Operating Partnership
                to
                Lightstone SLP, LLC (an affiliate of the Sponsor) and apply all the
                sales
                proceeds to reimburse offering costs paid to the Advisor or its affiliates
                on the Company’s behalf.Acquisition
                Fee
            
            The
                Advisor will be paid an acquisition fee equal to 2.75% of the gross
                contract purchase price (including any mortgage assumed) of each
                property
                purchased. The Advisor will also be reimbursed for expenses that
                it incurs
                in connection with the purchase of a property. The Company anticipates
                that acquisition expenses will be between 1% and 1.5% of a property’s
                purchase price, and acquisition fees and expenses are capped at 5%
                of the
                gross contract purchase price of a property. The actual amounts of
                these
                fees and reimbursements depend upon results of operations and, therefore,
                cannot be determined at the present time. However, $33,000,000 may
                be paid
                as an acquisition fee and for the reimbursement of acquisition expenses
                if
                the maximum offering is sold, assuming aggregate long-term permanent
                leverage of approximately 75%.


52


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





**4.** ***Related
      Party Transactions (continued):***




**Fees**
            ****
            **Amount**Property
                Management -*Residential
                / Retail*
            
            The
                Property Manager will be paid a monthly management fee of 5% of the
                gross
                revenues from residential and retail properties. In addition, the
                Company
                may pay the Property Manager a separate fee for the one-time initial
                rent-up or leasing-up of newly constructed properties in an amount
                not to
                exceed the fee customarily charged in arm’s length transactions by others
                rendering similar services in the same geographic area for similar
                properties as determined by a survey of brokers and agents in such
                area.Property
                Management -
              *Office
                / Industrial*
            
            The
                Property Manager will be paid monthly property management and leasing
                fees
                of up to 4.5% of gross revenues from office and industrial properties.
                In
                addition, the Company may pay the Property Manager a separate fee
                for the
                one-time initial rent-up or leasing-up of newly constructed properties
                in
                an amount not to exceed the fee customarily charged in arm’s length
                transactions by others rendering similar services in the same geographic
                area for similar properties as determined by a survey of brokers
                and
                agents in such area.Asset
                Management Fee
            
            The
                Advisor or its affiliates will be paid an asset management fee of
                0.55% of
                the Company’s average invested assets, as defined, payable quarterly in an
                amount equal to 0.1375 of 1% of average invested assets as of the
                last day
                of the immediately proceeding quarter.
              
              For
                any year in which the Company qualifies as a REIT, the Advisor must
                reimburse the Company for the amounts, if any, by which the total
                operating expenses, the sum of the advisor asset management fee plus
                other
                operating expenses paid during the previous fiscal year exceed the
                greater
                of 2% of average invested assets, as defined, for that fiscal year,
                or,
                25% of net income for that fiscal year. Items such as interest payments,
                taxes, non-cash expenditures, the special liquidation distribution,
                the
                special termination distribution, organization and offering expenses,
                and
                acquisition fees and expenses are excluded from the definition of
                total
                operating expenses, which otherwise includes the aggregate expense
                of any
                kind paid or incurred by the Company.Reimbursement
                of Other Expenses
            
            The
                Advisor or its affiliates will be reimbursed for expenses that may
                include
                costs of goods and services, administrative services and non-supervisory
                services performed directly for the Company by independent
                parties.





53





**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





**4.** ***Related
      Party Transactions (continued):***





Lightstone **** SLP,
      LLC **** intends
      to purchase special general partner units in the Operating Partnership. These
      special general partner units, the purchase price of which will be repaid only
      after stockholders receive a stated preferred return and their net investment,
      will entitle Lightstone **** SLP,
      LLC **** to
      a
      portion of any regular distributions made by the Operating Partnership. Such
      distributions will always be subordinated until stockholders receive a stated
      preferred return, as described below:





**Operating
                Stage**
              **Distributions**
            
            **Amount
                of Distribution**7%
                Stockholder Return Threshold
            
            Once
                a 7% return on their net investment is realized by stockholders,
                Lightstone SLP, LLC will receive available distributions from the
                Operating Partnership until it has received an amount equal to a
                cumulative non-compounded return of 7% per year on the purchase price
                of
                the special general partner interests. “Net investment” refers to $10 per
                share, less a pro rata share of any proceeds received from the sale
                or
                refinancing of the Company’s assets.12%
                Stockholder Return Threshold
            
            Once
                a cumulative non-compounded return of 12% per year is realized by
                stockholders on their net investment (including amounts equaling
                a 7%
                return on their net investment as described above), 70% of the aggregate
                amount of any additional distributions from the Operating Partnership
                will
                be payable to the stockholders, and 30% of such amount will be payable
                to
                Lightstone SLP, LLC.Returns
                in Excess of 12%
            
            After
                the 12% return threshold is realized by stockholders and Lightstone
                SLP,
                LLC, 60% of any remaining distributions from the Operating Partnership
                will be distributable to stockholders, and 40% of such amount will
                be
                payable to Lightstone SLP, LLC.





The
      special general partner units will also entitle Lightstone **** SLP,
      LLC **** to
      a
      portion of any liquidating distributions made by the Operating Partnership.
      The
      value of such distributions will depend upon the net sale proceeds upon the
      liquidation of the Company and, therefore, cannot be determined at the present
      time. Liquidating distributions to Lightstone **** SLP,
      LLC
      will always be subordinated until stockholders receive a distribution equal
      to
      their initial investment plus a stated preferred return, as described
      below:





**Liquidating
                Stage**
              **Distributions**
            
            **Amount
                of Distribution**7%
                Stockholder Return Threshold
            
            Once
                stockholders have received liquidation distributions, and a cumulative
                non-compounded 7% return on their initial net investment, Lightstone
                SLP,
                LLC will receive available distributions until it has received an
                amount
                equal to its initial purchase price of the special general partner
                interests plus a cumulative non-compounded return of 7% per
                year.12%
                Stockholder Return Threshold
            
            Once
                stockholders have received liquidation distributions, and a cumulative
                non-compounded return of 12% per year on their initial net investment
                (including amounts equaling a 7% return on their net investment as
                described above), 70% of the aggregate amount of any additional
                distributions from the Operating Partnership will be payable to the
                stockholders, and 30% of such amount will be payable to Lightstone
                SLP,
                LLC.Returns
                in Excess of 12%
            
            After
                stockholders and Lightstone LP, LLC have received liquidation
                distributions, and a cumulative non-compounded return of 12% per
                year on
                their initial net investment, 60% of any remaining distributions
                from the
                Operating Partnership will be distributable to stockholders, and
                40% of
                such amount will be payable to Lightstone SLP,
                LLC.





54


**PART II.
      CONTINUED:**


**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
      CONTINUED:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC** **.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





**5.
      Quarterly Financial Data (Unaudited)**





The
      following table presents selected unaudited quarterly financial data for each
      quarter during the year ended December 31, 2005:





**2005**31-Dec
              
              30-Sep
              
              30-Jun
              
              31-MarTotal
                  revenue
              
              $
              -
              
              
              -
              
              
              -
              
              
              -Net
                  income
              
              
              (116,407
              )
              
              -
              
              
              -
              
              
              -Net
                  income per common share, basic and diluted
              
              
              (5.82
              )
              
              -
              
              
              -
              
              
              -




55




**PART II.
      CONTINUED:**


**ITEM
      9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE:**





There
      were no disagreements on accounting or financial disclosure during
      2005.





On
      June
      24, 2005, Lightstone Value Plus Real Estate Investment Trust, Inc. (the
“Company”) engaged Amper, Politziner & Mattia, P.C. (“Amper”) as its
      independent registered public accounting firm. No audit or similar committee
      of
      the Board of Directors of the Company (the “Board”) made the decision to engage
      Amper, however the audit committee subsequently ratified the appointment of
      Amper on August 11, 2005. Since its incorporation and through June 24, 2005,
      the
      Company has not consulted with Amper in respect of the Company’s consolidated
      financial statements for the year ended December 31, 2004 regarding any of
      the
      matters or events set forth in Items 304(a)(2)(i) and (ii) of Regulation
      S-K.




On
      June
      24, 2005, the Company dismissed Kamler, Lewis and Noreman LLP (“Kamler”) as its
      independent registered public accounting firm. Kamler’s report on the financial
      statements of the Company since its incorporation did not contain any adverse
      opinion or disclaimer of opinion and was not qualified or modified as to
      uncertainty, audit scope or accounting principles. Further, since the Company’s
      incorporation and through June 24, 2005, there were no disagreements with Kamler
      regarding accounting principles or practices, financial statement disclosure
      or
      auditing scope or procedure, which disagreement, if not resolved to Kamler’s
      satisfaction, would have caused Kamler to reference the disagreement’s subject
      matter in connection with its report. Finally, since the Company’s incorporation
      and through June 24, 2005, there have been no “reportable events,” as defined in
      Regulation S-K, Item 304(a)(1)(v). No audit or similar committee of the Board
      of
      Directors of the Company (the “Board”) made the decision to dismiss
      Kamler.





**ITEM
      9A.  CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





The
      Company has established disclosure controls and procedures to ensure that
      material information relating to the Company, including its consolidated
      subsidiaries, is made known to the officers who certify the Company’s financial
      reports and to the members of senior management and the Board of Directors.





Based
      on
      management’s evaluation as of December 31, 2005, the chief executive officer and
      chief financial officer of the Company have concluded that the Company’s
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934) are effective to ensure that the
      information required to be disclosed by the Company in the reports that it
      files
      or submits under the Securities Exchange Act of 1934 is recorded, processed,
      summarized and reported within the time periods specified in SEC rules and
      forms.





**Changes
      in Internal Controls**





There
      were no changes to the Company’s internal control over financial reporting
      during the fourth quarter ended December 31, 2005 that have materially affected,
      or are reasonably likely to materially affect, the Company’s internal control
      over financial reporting.





**ITEM
      9B. OTHER INFORMATION:**





None.





56





**PART
      III.**





**ITEM
      10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE
      REGISTRANT**





**Directors**




The
      following table presents certain information as of March 1, 2006 concerning
      each
      of our directors serving in such capacity:


**Name**
              
              **Age**
              
              **Principal
                  Occupation and Postions Held**
              
              **Year
                  Term of Office Will Expire**
              
              **Served
                  as a Director Since**David
                  Lichtenstein
              
              45
              
              Chief
                  Executive Officer, President and Chairman of the Board of
                  Directors
              
              2006
              
              2004John
                  E. D’Elisa
              
              66
              
              Director
              
              2006
              
              2005Edwin
                  J. Glickman
              
              73
              
              Director
              
              2006
              
              2005Joel
                  M. Pashcow
              
              63
              
              Director
              
              2006
              
              2005Bruno
                  de Vinck
              
              60
              
              Chief
                  Operating Officer, Senior Vice President, Secretary and
                  Director
              
              2006
              
              2005


DAVID
      LICHTENSTEIN is the Chairman of our board of directors and our Chief Executive
      Officer and President. Mr. Lichtenstein has been a member of our board of
      directors since June 8, 2004. Mr. Lichtenstein founded both American Shelter
      Corporation and The Lightstone Group in 1988 and directs all aspects of the
      acquisition, financing and management of a diverse portfolio of multi-family,
      retail and industrial properties located in 26 states and Puerto Rico that
      is
      owned by these companies. He is a member of the International Council of
      Shopping Centers and NAREIT. Mr. Lichtenstein is the Chairman of the board
      of
      directors of Prime Group Realty Trust, a publicly registered REIT trading on
      the
      NYSE, as well as Prime Retail and Park Avenue Bank, both private companies.




JOHN
      E.
      D’ELISA has served as an independent director since 2005. Mr. D’Elisa is an
      associate member of NAREIT and a member of ICSC. Since July 2000, Mr. D’Elisa
      has been Managing Director and Real Estate Group head of Chatsworth Securities
      LLC, a private company that focuses on private placements as well as providing
      traditional investment banking services for real estate owners and developers.
      In addition, Mr. D’Elisa was Managing Director-Investment Banking at Josephthal
      and Co. and Ladenburg Thalman, two private companies, from September 1996 to
      June 2000 and was a partner and founder of Brookstone Partners, Inc., a real
      estate consulting firm that specialized in turnarounds, bankruptcy, and asset
      management, from May 1989 to September 1996. Mr. D’Elisa received his B.S.E.E
      from Bucknell University, attended graduate school at Yale University and
      received his M.S.E.E. from Polytechnic Institute of Brooklyn.




EDWIN
      J.
      GLICKMAN has served as an independent director since 2005. In January 1995,
      Mr.
      Glickman co-founded Capital Lease Funding, a leading mortgage lender for
      properties net leased to investment grade tenants, where he remained as
      Executive Vice President until May 2003. Since April 2002, Mr. Glickman has
      consulted for Right Track Recording with respect to restructuring debt
      obligations and recapitalizing the company. Since June 2003, Mr. Glickman has
      consulted for Capital Lease Funding with respect to proposed loan transactions
      that he introduces to the company. Mr. Glickman has been a trustee of RPS Realty
      Trust, a public real estate investment trust that made participating mortgage
      loans, and its predecessor entities since their founding in October 1980. Mr.
      Glickman has been a trustee of Atlantic Realty Trust, a public company, since
      its spin off from RPS Realty Trust in May 1996 and has been co-chair of its
      Asset Liquidation Committee since June 1996. Mr. Glickman graduated from
      Dartmouth College.




57


**PART
      III, CONTINUED:**


**ITEM
      10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
      CONTINUED:**





JOEL
      M.
      PASHCOW has served as an independent director since 2005. Mr. Pashcow has been
      a
      member of the bar of the State of New York since 1968. Mr. Pashcow has been
      Chairman, Chief Executive Officer and President of Atlantic Realty Trust, a
      public company, since its inception on February 29, 1996 and was the Chairman
      of
      RPS Realty Trust. Atlantic Realty Trust’s predecessor, from its inception in
      December 1988 until May 1996. Mr. Pashcow is also a trustee of Ramco-Gershenson
      Properties Trust (formerly RPS Realty Trust), a public real estate investment
      trust listed on the New York Stock Exchange that invests in retail properties,
      and is Chairman of its Executive Committee. Mr. Pashcow graduated from Cornell
      University and Harvard Law School.




BRUNO
      DE
      VINCK is our Chief Operating Officer, Senior Vice President, Secretary and
      a
      Director. Mr. de Vinck is also a Director of the privately held Park Avenue
      Bank, and Prime Group Realty Trust, a publicly registered REIT trading on the
      NYSE. Mr. de Vinck is a Senior Vice President with the Lightstone Group, a
      company he joined in April 1994. Mr. de Vinck was previously General Manager
      of
      JN Management Co. from November 1992 to January 1994, AKS Management Co., Inc.
      from September 1988 to July 1992 and Heritage Management Co., Inc. from May
      1986
      to September 1988. In addition, Mr. de Vinck worked as Senior Property Manager
      at Hekemien & Co. from May 1975 to May 1986, as a Property Manager at
      Charles H. Greenthal & Co. from July 1972 to June 1975 and in sales and
      residential development for McDonald & Phillips Real Estate Brokers from May
      1970 to June 1972. From July 1982 to July 1984 Mr. de Vinck was the founding
      president of the Ramsey Homestead Corp., a not-for-profit senior citizen
      residential health care facility, and, from July 1984 until October 2004, was
      Chairman of its board of directors. Mr. de Vinck studied Architecture at Pratt
      Institute and then worked for the Bechtel Corporation from February 1966 to
      May
      1970 in the engineering department as a senior structural
      draftsman.





**Executive
      Officers:**




The
      following table presents certain information as of March 1, 2006 concerning
      each
      of our executive officers serving in such capacities:


**Name**
              
              **Age**
              
              **Principal
                  Occupation and Postions Held**David
                  Lichtenstein
              
              45
              
              Chief
                  Executive Officer, President and Chairman of the Board of
                  DirectorsBruno
                  de Vinck
              
              60
              
              Chief
                  Operating Officer, Senior Vice President, Secretary and
                  DirectorMichael
                  M. Schurer
              
              44
              
              Chief
                  Financial Officer and TreasurerAngela
                  Mirizzi-Olsen
              
              43
              
              Chief
                  Investment Officer and Vice PresidentAdriana
                  M. Peters
              
              37
              
              General
                  CounselSamuel
                  Moerman
              
              42
              
              Vice-President,
                  Property Management


DAVID
      LICHTENSTEIN is the Chairman of our board of directors and our Chief Executive
      Officer and President. Mr. Lichtenstein has been a member of our board of
      directors since June 8, 2004. Mr. Lichtenstein founded both American Shelter
      Corporation and The Lightstone Group (our Advisor and Sponsor) in 1988 and
      directs all aspects of the acquisition, financing and management of a diverse
      portfolio of multi-family, retail and industrial properties located in 26 states
      and Puerto Rico that is owned by these companies. He is a member of the
      International Council of Shopping Centers and NAREIT. Mr. Lichtenstein is the
      Chairman of the board of directors of Prime Group Realty Trust, a publicly
      registered REIT trading on the NYSE, as well as Prime Retail and Park Avenue
      Bank, both private companies.





BRUNO
      DE
      VINCK is our Chief Operating Officer, Senior Vice President, Secretary and
      a
      Director. Mr. de Vinck is also a Director of the privately held Park Avenue
      Bank, a Trustee of Prime Group Realty Trust, a publicly registered REIT trading
      on the NYSE, and a Senior Vice President with our Advisor and Sponsor. Mr.
      De
      Vinck joined The Lightstone Group in April 1994, and was previously General
      Manager of JN Management Co. from November 1992 to January 1994, AKS Management
      Co., Inc. from September 1988 to July 1992 and Heritage Management Co., Inc.
      from May 1986 to September 1988. In addition, Mr. de Vinck worked as Senior
      Property Manager at Hekemien & Co. from May 1975 to May 1986, as a Property
      Manager at Charles H. Greenthal & Co. from July 1972 to June 1975 and in
      sales and residential development for McDonald & Phillips Real Estate
      Brokers from May 1970 to June 1972. From July 1982 to July 1984 Mr. de Vinck
      was
      the founding president of the Ramsey Homestead Corp., a not-for-profit senior
      citizen residential health care facility, and, from July 1984 until October
      2004, was Chairman of its board of directors. Mr. de Vinck studied Architecture
      at Pratt Institute and then worked for the Bechtel Corporation from February
      1966 to May 1970 in the engineering department as a senior structural
      draftsman.


58


**PART
      III, CONTINUED:**


**ITEM
      10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
      CONTINUED:**





MICHAEL
      M. SCHURER is our Chief Financial Officer and Treasurer. Mr. Schurer is also
      a
      Trustee of Prime Group Realty Trust, a publicly registered REIT trading on
      the
      NYSE, and the Chief Financial Officer of our Advisor and Sponsor. Prior to
      joining The Lightstone Group in April 2005, Mr. Schurer was Chief Financial
      Officer and Vice President of Northwest Hotel Group (formally Grand Heritage
      Hotel Group), a private operator of luxury, boutique and historic hotels in
      the
      United States and Caribbean, from August 2004 to April 2005. From January 2001
      through August 2004, Mr. Schurer was Chief Financial Officer, Treasurer and
      Secretary of Humphrey Hospitality Trust, Inc., a public, limited service hotel
      REIT that held as many as 93 properties during his time there. From March 1997
      to September 2000, Mr. Schurer was Chief Financial Officer and Executive Vice
      President of Crown Golf Properties, LP, a private golf course development,
      management and construction company. Prior to 1997, Mr. Schurer served as
      Division Controller, Senior Manager and Audit Manager with Marriott
      International, and as an independent auditor with Pannell Kerr Forster and
      Ernst
& Young. Mr. Schurer received a Bachelor of Arts in Accounting from Rutgers
      University and earned his CPA designation in 1987.





ANGELA
      MIRIZZI-OLSEN is our Chief Investment Officer and Vice President. Ms.
      Mirizzi-Olsen also serves as a Director of the privately held Park Avenue Bank
      and as the Chief Investment Officer of our Sponsor and Advisor. Ms.
      Mirizzi-Olsen oversees all financing activities of The Lightstone Group and
      is
      involved in a variety of complex joint venture and wholly-owned transactions
      in
      varied property types including multifamily, hotel, retail, office, and
      industrial. Ms. Olsen has over 20 years of real estate banking and structured
      finance experience. Prior to joining The Lightstone Group in July 2001, Ms.
      Mirizzi-Olsen was a Vice President of Arbor Commercial Mortgage, a national
      real
      estate financing organization, from May 1997 through June 2001. Ms Olsen
      underwrote, structured and originated mezzanine, bridge and preferred equity
      transactions. In addition, Ms. Mirizzi-Olsen was a Vice President at ARCS from
      January 1996 to May 1997, where she underwrote Fannie Mae and Freddie Mac
      mortgages. She has also worked as an independent real estate consultant for
      Citicorp Securities from April 1993 to January 1996 and as an Assistant Vice
      President at American Savings Bank from February 1991 until April 1993.




SAMUEL
      MOERMAN is our Vice-President-Property Management. Mr. Moerman has the same
      position with our Sponsor and Property Manager, where his responsibilities
      range
      from ensuring the smooth absorption of our sponsor’s diverse acquisitions to the
      oversight of the property and asset management teams tasked with enhancing
      the
      performance of our sponsor’s portfolio. Mr. Moerman also coordinates resources
      for all capital projects and tenant build-outs. Before joining our Sponsor,
      Mr.
      Moerman was Chief Operating Officer of Webspan Communications, an internet
      service provider, from February 1997 to February 1999. While there, he was
      responsible for creating the company’s infrastructure and aggressively growing
      its membership and revenues, which ultimately led to its acquisition by a large
      public company. Mr. Moerman joined American Shelter Corporation in February
      of
      1999. Since that time, he has held the position of Vice President of Property
      Management. Mr. Moerman has worked for either American Shelter Corporation
      or
      The Lightstone Group since 1999.




ADRIANA
      M. PETERS is our General Counsel and has also serves as General Counsel to
      our
      Sponsor and Advisor. Ms. Peters joined The Lightstone Group in May of 2000
      with
      responsibility for the oversight of all legal functions as well as support
      of
      the acquisition and financing departments of the company. Prior to joining
      The
      Lightstone Group, Ms. Peters was in private practice from November 1998 to
      May
      2000, specializing in commercial and residential real estate transactions.
      Prior
      to November 1998, Ms. Peters was a member of the corporate department at Sills
      Cummis Epstein & Gross. Ms. Peters obtained her BA from Villanova
      University, cum laude, in 1990, and her JD from Hofstra University in 1993.





**Section
      16 (a) Beneficial Ownership Reporting Compliance**




Our
      common stock is not registered pursuant to Section 12 of the Exchange Act of
      1934.  Our directors, executive officers and the holders of more than 10%
      of our common stock are not subject to Section 16(a), and they were not required
      to file reports under Section 16(a) for the fiscal year ended December 31,
      2005.


59


**PART
      III, CONTINUED:**


**ITEM
      10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
      CONTINUED:**





**Information
      Regarding Audit Committee**




Our
      Board
      established an audit committee in April 2005. The charter of audit committee
      is
      available in print to any shareholder who requests it c/o Lightstone Value
      Plus
      REIT, 326 Third Street, Lakewood, NJ 08701. Since April 2005, the audit
      committee has consisted of Messrs. John
      E.
      D’Elisa and Edwin J. Glickman, each of whom is “independent” within the meaning
      of the NYSE listing standards. The Board determined that Messrs. John
      E.
      D’Elisa and Edwin J. Glickman are qualified as audit committee financial experts
      as defined in Item 401 (h) of Regulation S-K. For more information
      regarding Messrs. John
      E.
      D’Elisa and Edwin J. Glickman, relevant professional experience, see
“Trustees”.





**ITEM
      11.  EXECUTIVE COMPENSATION**





**Compensation
      of Executive Officers**





We
      currently have no employees. Our day-to-day management functions are performed
      by our Advisor. Our executive officers are all employees of the Advisor. We
      do
      not pay any of these individuals for serving in their respective positions.





**Compensation
      of Board of Directors**





We
      pay
      our independent directors an annual fee of $30,000. Pursuant to our Employee
      and
      Director Incentive Share Plan, in lieu of receiving his or her annual fee in
      cash, an independent director is entitled to receive the annual fee in the
      form
      of our common shares or a combination of common shares and cash.





**ITEM
      12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED STOCKHOLDER MATTERS**


**Name
                  and Address of Beneficial Owner**
              
              **Number
                  of Shares of Common Stock of the Lightstone REIT Beneficially
                  Owned**
              
              **Percent
                  of All Common Shares of the Lightstone REIT**David
                  Lichtenstein
              
              
              20,000
              
              
              100
              %John
                  E. D'Elisa
              
              
              -
              
              
              -Edwin
                  J. Glickman
              
              
              -
              
              
              -Joel
                  M. Pashcow
              
              
              -
              
              
              -Bruno
                  de Vinck
              
              
              -
              
              
              -Michael
                  M. Schurer
              
              
              -
              
              
              -Angela
                  Mirizzi-Olsen
              
              
              -
              
              
              -Samuel
                  Moerman
              
              
              -
              
              
              -Adriana
                  M. Peters
              
              
              -
              
              
              -Our
                  trustees and executive officers as a group (9 persons)
              
              
              20,000
              
              
              100
              %




60


**PART
      III, CONTINUED:**


**ITEM
      12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED STOCKHOLDER MATTERS, CONTINUED:**





**EQUITY
      COMPENSATION PLAN INFORMATION**




We
      have
      adopted a stock option plan under which our independent directors are eligible
      to receive annual nondiscretionary awards of nonqualified stock options. Our
      stock option plan is designed to enhance our profitability and value for the
      benefit of our stockholders by enabling us to offer independent directors
      stock-based incentives, thereby creating a means to raise the level of equity
      ownership by such individuals in order to attract, retain and reward such
      individuals and strengthen the mutuality of interests between such individuals
      and our stockholders.




We
      have
      authorized and reserved 75,000 shares of our common stock for issuance under
      our
      stock option plan. The board of directors may make appropriate adjustments
      to
      the number of shares available for awards and the terms of outstanding awards
      under our stock option plan to reflect any change in our capital structure
      or
      business, stock dividend, stock split, recapitalization, reorganization, merger,
      consolidation or sale of all or substantially all of our assets.




Our
      stock
      option plan provides for the automatic grant of a nonqualified stock option
      to
      each of our independent directors, without any further action by our board
      of
      directors or the stockholders, to purchase 3,000 shares of our common stock
      on
      the date of each annual stockholders meeting. The exercise price for all stock
      options granted under our stock option plan will be fixed at $10 per share
      until
      the termination of our initial public offering, and thereafter the exercise
      price for stock options granted to our independent directors will be equal
      to
      the fair market value of a share on the last business day preceding the annual
      meeting of stockholders. The term of each such option will be 10 years. Options
      granted to non-employee directors will vest and become exercisable on the second
      anniversary of the date of grant, provided that the independent director is
      a
      director on the board of directors on that date. No options have been granted
      under our current plan.




Notwithstanding
      any other provisions of our stock option plan to the contrary, no stock option
      issued pursuant thereto may be exercised if such exercise would jeopardize
      our
      status as a REIT under the Internal Revenue Code.





The
      following table sets forth information regarding securities authorized for
      issuance under our Employee and Director Incentive Share Plan as of
      December 31, 2005:


**Number
                of Securities****Number
                of**
            
            
            
            **Remaining
                Available****Securities
                to be**
            
            
            
            **for
                Future Issuance****Issued
                Upon**
            
            **Weighted-Average**
            
            **Under
                Equity****Exercise
                of**
            
            **Exercise
                Price of**
            
            **Compensation
                Plans****Outstanding**
            
            **Outstanding**
            
            **(Excluding****Options,
                Warrants**
            
            **Options,
                Warrants**
            
            **Securities
                Reflected****Plan
                Category**
            
            **and
                Rights**
            
            **and
                Rights**
            
            **in
                Column (a))****(a)**
            
            **(b)**
            
            **(c)**Equity
                Compensation Plans approved by security holders
            
            
            0
            
            $
            0
            
            
            75,000Equity
                Compensation Plans not approved by security holders
            
            
            N/A
            
            
            N/A
            
            
            N/ATotal
            
            
            0
            
            $
            0
            
            
            75,000





61


**PART
      III, CONTINUED:**


**ITEM
      13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





David
      Lichtenstein serves as the Chairman of our Board of Directors, our Chief
      Executive Officer and our President. The Dealer Manager, Advisor and Property
      Manager are wholly owned subsidiaries of our Sponsor, The Lightstone Group,
      which is wholly owned by Mr. Lichtenstein. On April 22, 2005, we
      entered into agreements with the Dealer Manager, Advisor and Property Manager
      to
      pay certain fees, as described below, in exchange for services performed by
      these and other affiliated entities. As the indirect owner of those entities,
      Mr. Lichtenstein benefits from fees and other compensation that they receive
      pursuant to these agreements.





We
      have
      agreed to pay the Property Manager a monthly management fee of 5% of the gross
      revenues from our residential and retail properties. In addition, for the
      management and leasing of our office and industrial properties, we will pay
      to
      our Property Manager property management and leasing fees of up to 4.5% of
      gross
      revenues from our office and industrial properties. We may pay our Property
      Manager a separate fee for the one-time initial rent-up or leasing-up of newly
      constructed office and industrial properties in an amount not to exceed the
      fee
      customarily charged in arm’s length transactions by others rendering similar
      services in the same geographic area for similar properties as determined by
      a
      survey of brokers and agents in such area. Our Property Manager will also be
      paid a monthly fee for any extra services equal to no more than that which
      would
      be payable to an unrelated party providing the services. The actual amounts
      of
      these fees are dependent upon results of operations and, therefore, cannot
      be
      determined at the present time.





We
      pay
      the Dealer Manager selling commissions of up to 7% of gross offering proceeds,
      or approximately
      $21,000,000 if the maximum offering is sold, before
      reallowance of commissions earned by participating broker-dealers. The Dealer
      Manager expects to reallow 100% of commissions earned for those transactions
      that involve participating broker-dealers. We also pay to the Dealer Manager
      a
      dealer manager fee of up to 1% of gross offering proceeds, or approximately
      $3,000,000 if the maximum offering is sold, before
      reallowance to participating broker-dealers. The Dealer Manager, in its sole
      discretion, may reallow a portion of its dealer manager fee of up to 1% of
      the
      gross offering proceeds to be paid to such participating broker-dealers. Finally,
      the Dealer Manager may buy up to 600,000 warrants at a purchase price of $.0008
      per warrant, each of which would be exercisable for one share of the Company’s
      common stock at an exercise price of $12.00 per share.




We
      will
      pay our Advisor an acquisition fee equal to 2.75% of the gross contract purchase
      price (including any mortgage assumed) of each property purchased and will
      reimburse our Advisor for expenses that it incurs in connection with the
      purchase of a property. We anticipate that acquisition expenses will be between
      1% and 1.5% of a property’s purchase price, and acquisition fees and expenses
      are capped at 5% of the gross contract purchase price of a property. The Advisor
      will also be paid an advisor asset management fee of 0.55% of our average
      invested assets and we will reimburse some expenses of the Advisor. The actual
      amounts of these fees and reimbursements depend upon results of operations
      and,
      therefore, cannot be determined at the present time. However, $33,000,000 may
      be
      paid as an acquisition fee and for the reimbursement of acquisition expenses
      if
      the maximum offering is sold, assuming aggregate long-term permanent leverage
      of
      approximately 75%.




On
      April
      22, 2005, the Operating Partnership entered into an agreement with Lightstone
      SLP, LLC pursuant to which the Operating Partnership has issued and will
      continue to issue special general partner interests to Lightstone SLP, LLC
      in an
      amount equal to all expenses, dealer manager fees and selling commissions that
      we incur in connection with our organization and the offering of our common
      stock. As of March 27, 2006, Lightstone SLP, LLC had contributed $482,616 to
      the
      Operating Partnership in exchange for special general partner interests. As
      the
      sole member of our Sponsor, which wholly owns Lightstone SLP, LLC, Mr.
      Lichtenstein is the indirect, beneficial owner of such special general partner
      interests and will thus receive an indirect benefit from any distributions
      made
      in respect thereof.




These
      special general partner interests will entitle Lightstone SLP, LLC to a portion
      of any regular and liquidation distributions that we make to stockholders,
      but
      only after stockholders have received a stated preferred return. Although the
      actual amounts are dependent upon results of operations and, therefore, cannot
      be determined at the present time, distributions to Lightstone SLP, LLC, as
      holder of the special general partner interests, could be
      substantial.





62


**PART
      III, CONTINUED:**





**ITEM
      14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES**




Amper,
      Politziner & Mattia audited our financial statements for the year ended
      December 31, 2005, and Kamler, Lewis & Norman LLP audited our financial
      statements for the period from June 8, 2004 (date of inception) to December
      31,
      2004. Both Amper, Politziner & Mattia and Kamler, Lewis & Norman LLP
      report directly to our audit committee.




***Principal
      Accounting Firm Fees***




The
      following table presents the aggregate fees billed to the Company for the year
      ended December 31, 2005 and the period from June 8, 2004 (date of
      inception) to December 31, 2004 by the Company’s principal accounting firms of
      Amper, Politziner & Mattia and Kamler, Lewis & Norman LLP, respectively:




**2005**
            
            **2004**Audit
                Fees (a)
            
            $
            70,000
            
            $
            48,500Audit-Related
                Fees (b)
            
            
            —
            
            
            —Tax
                Fees (c)
            
            
            —
            
            
            —All
                Other Fees (d)
            
            
            —
            
            
            —Total
                Fees
            
            $
            70,000
            
            $
            48,500




a)
            Fees
                for audit services billed in 2005 consisted of the audit of the Company’s
                annual financial statements, and reviews of the Company’s quarterly
                financial statements. Fees for audit services billed in 2004 consisted
                of
                the audit of the Company’s annual financial statements and other services
                related to SEC matters.





(b)
            There
                were no fees for audit-related services billed in 2005 or
                2004.





(c)
            There
                were no fees for tax services billed in 2005or
                2004.





(d)
            There
                were no fees for other services billed in 2005 or
                2004.





In
      considering the nature of the services provided by the independent auditor,
      the
      audit committee determined that such services are compatible with the provision
      of independent audit services. The audit committee discussed these services
      with
      the independent auditor and Company management to determine that they are
      permitted under the rules and regulations concerning auditor independence
      promulgated by the SEC to implement the related requirements of the
      Sarbanes-Oxley Act of 2002, as well as the American Institute of Certified
      Public Accountants.





**AUDIT
      COMMITTEE REPORT**




*To
      the Directors of Lightstone Value Plus Real Estate Investment Trust,
      Inc.:*




*We
      have reviewed and discussed with management Lightstone Value Plus Real Estate
      Investment Trust, Inc.’s audited financial statements as of and for the year
      ended December 31, 2005.*




*We
      have discussed with the independent auditors the matters required to be
      discussed by Statement on Auditing Standards No. 61, Communication with
      Audit Committees, as amended by Statement on Auditing Standards No. 90,
      Audit Committee Communications, by the Auditing Standards Board of the American
      Institute of Certified Public Accountants.*




*We
      have received and reviewed the written disclosures and the letter from the
      independent auditors required by Independence Standards Board Standard
      No. 1, Independence Discussions with Audit Committees, as amended, by the
      Independence Standards Board, and have discussed with the auditors the auditors’
independence.*




*Based
      on the reviews and discussions referred to above, we recommend to the board
      of
      directors that the financial statements referred to above be included in
      Lightstone Value Plus Real Estate Investment Trust, Inc.’s Annual Report on
      Form 10-K for the year ended December 31, 2005.*




***Audit
      Committee***


John
      E.
      D’Elisa ****


Edwin
      J.
      Glickman


63





**PART
      IV.**





**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:**





**LIGHTSTONE
      VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.**


Annual
      Report on Form 10-K


for
      the
      fiscal year ended December 31, 2005





EXHIBIT
      INDEX





The
      following exhibits are filed as part of this Annual Report on Form 10-K or
      incorporated by reference herein:





**Exhibit**
              **Number**
            
            
            **Description**3.1
            *
            
            Amended
                and Restated Charter of Lightstone Value Plus Real Estate Investment
                Trust, Inc.3.2
            *
            
            Bylaws
                of Lightstone Value Plus Real Estate Investment Trust,
                Inc.4.1
            *
            
            Amended
                and Restated Agreement of Limited Partnership of Lightstone Value
                Plus
                REIT LP.10.1
            *
            
            Escrow
                Agreement by and among Lightstone Value Plus Real Estate Investment
                Trust,
                Inc., Trust Company of America and Lightstone
                Securities.10.2
            *
            
            Advisory
                Agreement by and among Lightstone Value Plus Real Estate Investment
                Trust,
                Inc., Lightstone Value Plus REIT, LLC.10.3
            *
            
            Management
                Agreement, by and among Lightstone Value Plus Real Estate Investment
                Trust, Inc., Lightstone Value Plus REIT LP and Lightstone Value Plus
                REIT
                Management LLC.10.4
            *
            
            Form
                of the Company’s Stock Option Plan.10.5
            *
            
            Form
                of Indemnification Agreement by and between The Lightstone Group
                and the
                directors and executive officers of Lightstone Value Plus Real Estate
                Investment Trust, Inc.10.6
            *
            Agreement
                by and among Lightstone Value Plus REIT LP, Lightstone SLP, LLC,
                and David
                Lichtenstein.31.1
            
            
            Certification
                Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of
                the
                Sarbanes-Oxley Act of 200231.2
            
            
            Certification
                Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of
                the
                Sarbanes-Oxley Act of 200232.1
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 200232.2
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002*
            Incorporated
                by reference from Lightstone Value Plus Real Estate Investment Trust,
                Inc.’s Registration Statement on Form S-11 (File No. 333-117367).





64





**SIGNATURES**




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




**LIGHTSTONE
                VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.**Date: March
                28, 2006
            By:
            /s/ David
                LichtensteinDavid
              LichtensteinChief
                Executive Officer, President and Chairman of the Board of
                Directors
              (Principal
                Executive Officer)




Pursuant
      to the requirements of the Securities Act of 1933, as amended, this Registration
      Statement has been signed by the following persons in the capacities and on
      the
      dates indicated.





**NAME**
            **CAPACITY**
            **DATE**/s/
                David Lichtenstein
              **David
                Lichtenstein**
            Chief
                Executive Officer, President and Chairman of the Board of
                Directors
            March
                28, 2006/s/
                Michael M. Schurer
              **Michael
                M. Schurer**
            Chief
                Financial Officer and Treasurer
            March
                28, 2006/s/Bruno
                de Vinck
              **Bruno
                de Vinck**
            Director
            March
                28, 2006/s/John
                E. D’Elisa
              **John
                E. D’Elisa**
            Director
            March
                28, 2006/s/Edwin
                J. Glickman
              **Edwin
                J. Glickman**
            Director
            March
                28, 2006/s/Joel
                M. Pashcow
              **Joel
                M. Pashcow**
            Director
            March
                28, 2006





65