**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, 2006**




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, 2006, the aggregate market value of the common shares held by
      non-affiliates of the registrant was $12,534,280. 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 8, 2007, there were 5,413,640 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
              3Item
                  1A.
              Risk
                  Factors
              8Item
                  1B.
              Unresolved
                  Staff Comments
              30Item
                  2.
              Properties
              30Item
                  3.
              Legal
                  Proceedings
              31Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              31**PART II**Item 5.
              Market
                  for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
                  Purchases of Equity Securities
              31Item 6.
              Selected
                  Financial Data
              34Item 7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              34Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              49Item
                  8.
              Financial
                  Statements and Supplementary Data
              50Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              76Item
                  9A.
              Controls
                  and Procedures
              76Item
                  9B.
              Other
                  Information
              76**PART
                  III**Item 10.
              Directors
                  and Executive Officers of the Registrant
              77Item
                  11.
              Executive
                  Compensation
              80Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management
              80Item
                  13.
              Certain
                  Relationships and Related Transactions
              81Item
                  14.
              Principal
                  Accounting Fees and Services
              83**PART
                  IV**Item 15.
              Exhibits
                  and Financial Statement Schedules
              85Signatures
              87
  2


**Special
      Note Regarding Forward-Looking Statements**




This
      annual report on Form 10-K, together with other statements and information
      publicly disseminated by Lightstone Value Plus real Estate Investment Trust,
      Inc. (the “Lightstone REIT” or the “Company”) contains certain forward-looking
      statements within the meaning of Section 27A of the Securities Act of 1933,
      as amended, and Section 21E of the Securities Exchange Act of 1934, as
      amended. The Company intends such forward-looking statements to be covered
      by
      the safe harbor provisions for forward-looking statements contained in the
      Private Securities Litigation Reform Act of 1995 and includes this statement
      for
      purposes of complying with these safe harbor provisions. Forward-looking
      statements, which are based on certain assumptions and describe the Company’s
      future plans, strategies and expectations, are generally identifiable by use
      of
      the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or
      similar expressions. You should not rely on forward-looking statements since
      they involve known and unknown risks, uncertainties and other factors, which
      are, in some cases, beyond the Company’s control and which could materially
      affect actual results, performances or achievements. Factors which may cause
      actual results to differ materially from current expectations include, but
      are
      not limited to, (i) general economic and local real estate conditions,
      (ii) the inability of major tenants to continue paying their rent
      obligations due to bankruptcy, insolvency or general downturn in their business,
      (iii) financing risks, such as the inability to obtain equity, debt, or
      other sources of financing on favorable terms, (iv) changes in governmental
      laws and regulations, (v) the level and volatility of interest rates and
      foreign currency exchange rates, (vi) the availability of suitable
      acquisition opportunities and (vii) increases in operating costs. Accordingly,
      there is no assurance that the Company’s expectations will be
      realized.





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.





**PART I.**


**ITEM
      1. BUSINESS:**





**General
      Description of Business**





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 18,000 residential units as well as office, industrial and
      retail properties totaling in excess of 29 million square feet of space in
      27
      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.




3





**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 the Advisor on July 6, 2004, for $10
      per
      share. The Lightstone REIT invested the proceeds from this sale in the Operating
      Partnership, and as a result, held a 99.01% general partnership interest at
      December 31, 2004 and 2005, and a 99.99% general partnership interest at
      December 31, 2006. 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 Lightstone REIT, 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
      the
      minimum offering from 1 million shares of common stock to 200,000 shares of
      common stock. As of December 31, 2005, the Lightstone REIT 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 Lightstone REIT from escrow
      and
      invested in the Operating Partnership.





As
      of
      March 8, 2007, cumulative gross offering proceeds of approximately $54.0 million
      have been released to the Lightstone REIT and used for the purchase of a 99.99%
      general partnership interest in the Operating Partnership. The Lightstone REIT
      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 periodically purchase special
      general partner interests 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 repay
      advances from the Advisor that were used to fund organizational and offering
      costs incurred by the Lightstone REIT. Through December 31, 2006, the Lightstone
      REIT offset proceeds of approximately $4.3 million from the sale of special
      general partnership interests against approximately $5.4 million of Advisor
      cash advances used for offering costs. Through March 8, 2007, the Lightstone
      REIT offset proceeds of approximately $5.4 million from the sale of special
      general partnership interests against approximately $6.3 million of Advisor
      cash advances used for offering costs, which represented 12% of gross offering
      proceeds during the same period.





Our
      Advisor has not allocated any organizational costs to the Lightstone REIT as
      of
      December 31, 2006. Our Advisor is responsible for offering and organizational
      costs exceeding 10% of the gross offering proceeds without recourse to the
      Lightstone REIT.





Through
      its Operating Partnership, the Lightstone REIT 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 Lightstone REIT alone or
      jointly with another party. The Lightstone REIT has completed five acquisitions
      to date, three of which were completed prior to December 31, 2006. To date,
      the
      Lightstone REIT acquired: the Belz Factory Outlet World, a retail outlet
      shopping mall in St. Augustine, Florida, on March 31, 2006; four multi-family
      communities in Southeast Michigan on June 29, 2006; the Oakview Plaza, a retail
      shopping mall located in Omaha, Nebraska, on December 21, 2006; an investment
      in
      a joint venture, formed to purchase a sub-ground lease to an office building
      in
      New York, NY, on January 4, 2007; and a portfolio of 12 industrial and two
      office buildings in Louisiana and Texas, on February 1, 2007. See Item 7 for
      further discussion.




4





The
      Lightstone REIT’s Advisor, Dealer Manager and Lightstone Value Plus REIT
      Management LLC (the “Property 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, in order to achieve economies of scale where
      possible. Our Sponsor currently maintains operations in Alabama, California,
      Connecticut, District of Columbia, Florida, Georgia, Illinois, Indiana,
      Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Nebraska, New Jersey,
      New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South
      Carolina, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin
      and
      Puerto Rico.





5




**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 Lightstone REIT had $95.5 million in outstanding long-term
      obligations as of December 31, 2006.




**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 stockholders as of daily record
      dates and aggregate and pay such dividends quarterly.





The
      Board
      of Directors of the Lightstone REIT declared a dividend for each quarter in
      2006
      and for the quarter ending March 31, 2007. The dividends have been calculated
      based on stockholders of record each day during each respective three-month
      period at a rate of $0.0019178 per day, which, if paid each day for a 365-day
      period, would equal a 7.0% annualized rate based on a share price of $10.00.
      Total dividends declared for the year ended December 31, 2006 were $1.1 million.
      The dividend declared for the quarter ending March 31, 2007 will be paid in
      cash
      in April 2007 to stockholders of record as of March 30, 2007.




**Tax
      Status**





As
      of
      December 31, 2006, we qualified as a REIT and will elect to be taxed as a REIT
      for the taxable year ending December 31, 2006. As a REIT, we generally will
      not
      be subject to corporate federal income tax to the extent we distribute our
      taxable income to our stockholders. 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 other
      REITs with asset acquisition objectives similar to ours that 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 those sought
      by
      the Lightstone REIT. Therefore, we will compete for institutional investors
      in a
      market where funds for real estate investment may decrease.




6





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 Lightstone REIT 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**




Stockholders
      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





**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**





***Our
      REIT is newly formed; therefore we have limited operating history to evaluate
      our likely performance.*** We
      acquired our first real estate assets in early 2006. Accordingly, we do not
      have
      an extensive operating history upon which to evaluate our likely performance.
      We
      may not be able to implement our business plan successfully.





***The
      offer and sale of common stock to certain stockholders may be deemed to have
      violated federal securities laws and as a result, those stockholders may have
      the right to rescind their original purchase of our
      securities.*** During
      the period from May 11, 2006 through June 8, 2006 (the “Period”), we continued
      to offer our common stock while our post-effective amendments containing the
      December 31, 2005 financial statements were on file with the SEC but had not
      been declared effective. The offer and sale of our common stock during the
      Period may have been in violation of the rules and regulations under the
      Securities Act of 1933, as amended (“Securities Act”), and the
      interpretations of the SEC. If a violation of Section 5 of the Securities Act
      did in fact occur, stockholders who purchased during the Period would have
      a
      right to rescind their purchase of the common stock. The Securities Act
      generally requires that any claim brought for a violation of Section 5 be
      brought within one year of the violation. If all of the stockholders who
      purchased during the Period demanded rescission within that one-year period,
      we
      would be obligated to repay approximately $3,525,000, which we would repay
      using
      offering proceeds that we have received.





***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.




8





***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 our operating partnership or we will be considered an “investment”
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 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 our investments by the SEC or a court should deem them to be
      investment securities, we could be deemed to be an investment company and
      subject to additional restrictions.





Even
      if
      our operating partnership or we 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.


9





**Conflicts
      of Interest**




***There
      are conflicts of interest between our Dealer Manager, Advisor, Property Manager
      and their affiliates and us.*** David
      Lichtenstein founded American Shelter Corporation and The Lightstone Group,
      LLC.
      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, Property Manager, our
      Dealer Manager and affiliates, except for us, although he owned 20,000 shares,
      or over 9% of our shares, indirectly through our Advisor at the time we reached
      the minimum offering of $2,000,000.





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.




***An
      affiliated party is providing title insurance
      services.*** From
      time to time, the Operating Partnership purchases title insurance from an agent
      in which our Sponsor owns a fifty percent limited partnership interest. Because
      this title insurance agent receives significant fees for providing title
      insurance, our Advisor may face a conflict of interest when considering the
      terms of purchasing title insurance from this agent. However, prior to our
      purchase of any title insurance, an independent title consultant with more
      than
      25 years of experience in the title insurance industry reviews the transaction,
      and performs market research and competitive analysis on the Operating
      Partnership’s behalf. This process results in terms similar to those that would
      be negotiated at an arm’s-length basis.




***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.




***We
      do not have employees.*** ** Likewise,
      our Advisor will rely on the employees of our Sponsor and its affiliates to
      manage and operate our business. Our 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. Our Sponsor currently
      controls and/or operates other entities that own properties in many of the
      markets in which we may seek to invest. Our 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 our 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
      our
      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 our 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 our Property Manager to operate our business could be adversely
      impacted.




10




***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, our 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 estate properties may involve risks otherwise not present when
      we
      purchase real estate 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-venturer 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 Advisor 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.





***An
      affiliated party is providing property management services.*** 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 our Property Manager because our Property Manager may lose fees
      associated with the management of the property. Specifically, because our
      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 our 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.




***Our
      Advisor and its affiliates receive 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, our Advisor’s ability to
      receive fees and reimbursements depends on our continued investment in real
      properties. Therefore, the interest of our 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.*** Our
      Property Manager and our 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.




11




***We
      may compete with other entities affiliated with our Sponsor for
      tenants.*** Our
      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. Our 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 our Sponsor and its affiliates. Our Sponsor may face
      conflicts of interest when evaluating tenant opportunities for our properties
      and other properties owned and/or managed by our 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).*** Our
      organizational structure makes us 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 that 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.





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.




12




***The
      operating partnership agreement contains provisions that may discourage a third
      party from acquiring us.*** A
      limited
      partner in the 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 our
      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***




***Our
      rights and the rights of our stockholders to take action against the directors
      and our 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
      our
      Advisor, require us to indemnify our directors, officers, employees and agents
      and our 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 willful misconduct. As a result, the
      stockholders and we may have more limited rights against our directors,
      officers, employees and agents, and our 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 our 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.




13




***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 our Sponsor and such affiliates’
employees, including salaries, other cash compensation and options. In addition,
      our Dealer Manager and Property Manager will receive compensation for acting,
      respectively, as our Dealer Manager and Advisor (although we will pay our Dealer
      Manager fees and selling commissions with the proceeds from the sale of the
      special general partner interests in our operating partnership to our 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, our Property Manager 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.




***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.





***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.





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




***Real
      Estate Investment Risks***




***Operating
      risks.***




***Our
      cash flows from real estate investments may become insufficient to pay
      our operating expenses and to cover the dividends we have paid and/or
      declared.*** Although
      our operating cash flows are currently sufficient to pay both our expenses
      and dividends at our historical per-share amounts, we cannot assure you
      that we will be able to maintain sufficient cash flows to fund operating
      expenses and dividend at any particular level, if at all.




14




As
      we
      continue to raise proceeds from this offering, the sufficiency of cash flow
      to
      fund future dividend payments with respect to an increased number of outstanding
      shares will depend on the pace at which we are able to identify and close on
      suitable cash-generating real property investments. Because the accrual of
      offering proceeds may outpace the investment of these funds in real property
      acquisitions, cash generated from such investments may become insufficient
      to
      fund operating expenses and continued dividend payments at historical
      levels.





***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.




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 you. Except as described in “Real Property Investments - Specified
      Investments,” we do not currently own properties or other investments, we have
      not obtained any financing and we do not currently conduct any
      operations.





***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.




15




***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 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
      un-expired 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.




16




***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.





***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.




17




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 there from.




***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.





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.




18





***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.





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.




19





***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.





***Retail
      industry risks.***





Our
      retail properties are subject to the various risks discussed above. In addition,
      they are 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.




20




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 that we may derive from
      percentage rent leases could decline upon a general economic
      downturn.





***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.





***Residential
      industry risks.***





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.




21




***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 result from an economic downturn and encourage potential
      renters to purchase residences rather than lease them. Our residential
      properties 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
      acquire and intend to continue 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.




Our
      mortgage debt contains 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, our financing
      arrangements involving balloon payment obligations 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.




***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.




22




***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 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.





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.




Our
      debt
      financing for acquisitions is frequently determined from appraised values in
      lieu of acquisition cost. As appraisal values are typically greater than
      acquisition cost for the type of value assets we seek to acquire, our debt
      can
      be expected to exceed certain leverage limitations of the Lightstone REIT.
      Our
      Board, including all of its independent directors, has approved and will
      continue to approve any leverage exceptions as required by the Lightstone REIT's
      Articles of Incorporation.





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.


23





***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 may 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.





***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 commercial owners purchase specific coverage
      against terrorism 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.




24


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.
 
 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. There is no assurance that Congress will extend the insurance beyond
        2007.
  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.
  25
 
 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.
  Property
        values may also be affected by the proximity of such properties 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 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 treatments. 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.
  26
  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.
 
 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.
  27
  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 maintain our REIT status, our dividends will not be deductible to
        us,
        and our income will be subject to taxation. We intend to maintain our REIT
        status under the Internal Revenue Code, which will afford us significant
        tax
        advantages. The requirements to maintain 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.
  ***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
        represented Proskauer Rose LLP’s legal judgment based on the law in effect as of
        the date of our 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.
  28
  ***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.
  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.
  29
  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:**
 
 As
        of
        December 31, 2006, the Lightstone REIT’s consolidated properties consisted of
        two retail properties, representing a total of approximately 430,000 square
        feet
        of gross leaseable area, and four residential apartment communities,
        representing approximately 1,000 units in the aggregate. The Lightstone REIT
        believes that all of its properties are well maintained and do not require
        significant capital improvements. On January 4, 2007, the Lightstone REIT
        acquired a 49% equity interest in a joint venture formed for the purpose
        of
        acquiring a sub-leasehold interest in a ground lease to a 42-story, 915,000
        square foot office building in New York, NY. On February 1, 2007, the Lightstone
        REIT acquired a portfolio of 12 industrial and 2 office buildings,
        representing approximately 1.0 million square feet, located in Louisiana
        and
        Texas.
  30
 **ITEM
        3. LEGAL PROCEEDINGS:**
  From
        time
        to time in the ordinary course of business, the Lightstone REIT may become
        subject to legal proceedings, claims or disputes.
  On
          March
          29, 2006, Jonathan Gould, a former member of our Board of Directors and
          Senior
          Vice-President-Acquisitions, filed a lawsuit against us in the District
          Court
          for the Southern District of New York. The suit alleges, among other things,
          that Mr. Gould was insufficiently compensated for his services to us as
          director
          and officer. Mr. Gould sought damages of (i) up to $11,500,000 or (ii)
          a 2.5%
          ownership interest in all properties that we acquire and an option to acquire
          up
          to 5% of the membership interests of Lightstone SLP, LLC. We filed a motion
          to
          dismiss the lawsuit. After review of the motion to dismiss, counsel for
          Mr.
          Gould represented that Mr. Gould was dropping his claim for ownership interest
          in the properties we acquire and his claim for membership interests. Mr.
          Gould’s
          counsel represented that he would be suing only under theories of quantum
          merit
          and unjust enrichment seeking the value of work he performed.  Management
          believes that this suit is frivolous and entirely without merit and intends
          to
          defend against these charges vigorously.
 On
          January 4, 2007, 1407 Broadway Real Estate LLC ("Office Owner"), an indirect,
          wholly owned subsidiary of 1407 Broadway Mezz II LLC ("Mezz II"), consummated
          the acquisition of a sub-leasehold interest (the "Sublease Interest") in
          an
          office building located at 1407 Broadway, New York, New York (the "Office
          Property"). Mezz II is a joint venture between LVP 1407 Broadway LLC ("LVP
          LLC"), a wholly owned subsidiary of our operating partnership, and Lightstone
          1407 Manager LLC ("Manager"), which is wholly owned by David Lichtenstein,
          the
          Chairman of our Board of Directors and our Chief Executive Officer and
          President, and Shifra Lichtenstein, his wife.
 
 The
          Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold
          Agreement with Gettinger Associates, L.P. ("Gettinger"). In July 2006,
          Abraham
          Kamber Company, as sublessor under the sublease ("Sublessor"), served two
          notices of default on Gettinger (the "Default Notices"). The first alleged
          that
          Gettinger had failed to satisfy its obligations in performing certain
          renovations and the second asserted numerous defaults relating to Gettinger's
          purported failure to maintain the Office Property in compliance with its
          contractual obligations.
  In
          response to the Default Notices, Gettinger commenced legal action and obtained
          an injunction that extends its time to cure any default, prohibits interference
          with its leasehold interest and prohibits Sublessor from terminating its
          sublease pending resolution of the litigation. A motion by Sublessor for
          partial
          summary judgment, alleging that certain work on the Office Property required
          its
          prior approval, was denied by the Supreme Court, New York County. Subsequently,
          by agreement of the parties, a stay was entered precluding the termination
          of
          the Sublease Interest pending a final decision on Sublessor's claim of
          defaults
          under the Sublease Interest. In addition, the parties stipulated to the
          intervention of Office Owner as a party to the proceedings. The parties
          have
          been directed to engage in and complete discovery. We consider the litigation
          to
          be without merit.
 
 Prior
          to
          consummating the acquisition of the Sublease Interest, Office Owner received
          a
          letter from Sublessor indicating that Sublessor would consider such acquisition
          a default under the original sublease, which prohibits assignments of the
          Sublease Interest when there is an outstanding default thereunder. On February
          16, 2007, Office Owner received a Notice to Cure from Sublessor stating
          the
          transfer of the Sublease Interest occurred in violation of the Sublease
          given
          Sublessor's position that Office Seller is in default. Office
          Owner will commence and vigorously pursue litigation in order to challenge
          the
          default, receive an injunction and toll the termination period provided
          for in
          the Sublease.
  As
        of the
        date hereof, we are not a party to any other material pending legal proceedings.
  **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:**
  None.
 
 **PART II.**
  **ITEM
        5. MARKETS FOR COMMON EQUITY AND RELATED SHAREHOLDER
        MATTERS:**
  As
        of
        March 8, 2007, we had 5,413,640 common shares outstanding, held by a
        total of 3,037 stockholders. The number of stockholders 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, subject to restrictions
        and applicable law. A selling stockholder must be unaffiliated with us, 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 offering period;
  ·
              $9.50
                  per share during the 12 months following the close of the offering;
                  and
  ·
              $10
                  per share thereafter.
  Redemption
        of shares, when requested, will be made quarterly. 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.
 31
 
 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 stockholders 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, 2006. 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 stockholders as of daily record
        dates and aggregate and pay such dividends quarterly.
 
 The
        Board
        of Directors of the Lightstone REIT declared a dividend for each quarter
        in 2006
        and for the quarter ending March 31, 2007. The dividends have been calculated
        based on stockholders of record each day during this three-month period at
        a
        rate of $0.0019178 per day, which, 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
        declared for the quarter ending March 31, 2007 will be paid in cash in April
        2007 to stockholders of record as of March 30, 2007.
 
 **Recent
        Sales of Unregistered Securities**
  During
        the period covered by this 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. During the period from May 1, 2006 through June 8,
        2006
        (the “Period”), we continued to offer our common stock while our post-effective
        amendments containing the December 31, 2005 financial statements were on
        file
        with the SEC but had not been declared effective. The offer and sale of our
        common stock during the Period may have been in violation of the rules and
        regulations under the Securities Act of 1933 (“Securities Act”), and the
        interpretations of the SEC. If a violation of Section 5 of the Securities
        Act
        did in fact occur, stockholders who purchased during the Period would have
        a
        right to rescind their purchase of the common stock. The Securities Act
        generally requires that any claim brought for a violation of Section 5 be
        brought within one year of the violation. If all of the stockholders who
        purchased during the Period demanded rescission within that one-year period,
        we
        would be obligated to repay approximately $3,525,000, which we would repay
        using
        offering proceeds that we have received.
 
 32
  **Use
        of Initial Public Offering Proceeds**
 ****
 On
        April
        22, 2005, our Registration Statement on Form S-11 (File No. 333-117367),
        covering a public offering, which we refer to as the “Offering,” of up to
        30,000,000 common shares for $10 per share (exclusive of 4,000,000 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) was declared effective under the Securities Act of 1933.
        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.
  Through
        December 31, 2006, we had sold approximately 4.3 million shares for gross
        offering proceeds of approximately $42.8 million. This amount includes
        approximately 21,000 shares sold pursuant to our Dividend Reinvestment Plan
        for
        gross proceeds of approximately $0.2 million. From the effective date of
        our
        public offering through December 31, 2006, we have incurred the following
        expenses in connection with the issuance and distribution of the registered
        securities.
 **Type
                    of Actual Expense**
                
                **As
                    of**
                  **December
                    31,**
                  **2006**Underwriting
                    discounts and commissions
                
                $
                3,337,501Finders’
                    fees
                
                
                -Expenses
                    paid to or for underwriters
                
                
                -Other
                    expenses to affiliates
                
                
                -Other
                    expenses paid to non-affiliates
                
                
                943,869**Total
                    expenses**
                
                $
                4,281,370
  With
        net
        offering proceeds of $42.8 million as of December 31, 2006, and new mortgage
        debt in the amount of $95.5 million, as reflected under “Cash Flows from
        Financing Activities” in our consolidated statements of cash flows, we acquired
        approximately $111.0 million in real estate investments and related assets.
        Cumulatively, we have used the net offering proceeds as follows:
 **Type
                    of Expense in Actual Amounts**
                
                **As
                    of**
                  **December
                    31,**
                  **2006**Construction
                    of plant, building and facilities
                
                
                -Purchase
                    of real estate interests and related
                    assets
                
                $
                15,534,092Acquisition
                    of other businesses
                
                
                -Repayment
                    of indebtedness
                
                
                -Purchase
                    and installation of machinery and equipment
                
                
                -Working
                    capital (as of December 31, 2006)
                
                
                163,949Temporary
                    investments (as of December 31, 2006)
                
                
                18,680,661Other
                    uses (including deposits for real estate
                    transactions)
                
                
                8,435,000Total
                    uses
                
                $
                42,813,702
  As
        of March
        8,
        2007 ,
        we have sold approximately 5.4 million shares at an aggregate offering price
        of
        $54.0 million.
  33
  **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.
 **2006**
                
                **2005**
                
                **2004****(1)****Operating
                    Data:**Revenues
                
                $
                8,262,667
                
                $
                —
                
                $
                —Net
                    loss before loss allocated to minority interests
                
                $
                (1,536,430
                )
                $
                (117,571
                )
                $
                —Loss
                    allocated to minority interests
                
                $
                86
                
                $
                1,164
                
                $
                —Net
                    loss
                
                $
                (1,536,344
                )
                $
                (116,407
                )
                $
                —Basic
                    and diluted loss per common share
                
                $
                (0.96
                )
                $
                (5.82
                )
                $
                —Dividends
                    declared per common share
                
                $
                1,101,708
                
                $
                —
                
                $
                —Weighted
                    average common shares outstanding-basic and diluted
                
                
                1,594,060
                
                
                20,000
                
                
                20,000**Balance
                    Sheet Data:**Total
                    assets
                
                $
                140,708,217
                
                $
                430,996
                
                $
                205,489Long-term
                    obligations
                
                $
                95,475,000
                
                $
                —
                
                $
                —
  (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.
 
 **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. (the “Lightstone REIT” or
“Company”) intends to acquire and operate commercial and residential properties,
        principally in the United States. Principally through the Lightstone Value
        Plus
        REIT, LP, (the “Operating Partnership”), 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. The Lightstone
        REIT has completed five acquisitions to date, three of which were completed
        prior to December 31, 2006. To date, the Lightstone REIT acquired: the Belz
        Factory Outlet World, a retail outlet shopping mall in St. Augustine, Florida,
        on March 31, 2006; four multi-family communities in Southeast Michigan on
        June
        29, 2006; the Oakview Plaza, a retail shopping mall located in Omaha, Nebraska,
        on December 21, 2006; a 49% equity interest in a joint venture, formed to
        purchase a sub-leasehold interest in a ground lease to an office building
        in New York, NY, on January 4, 2007; and a portfolio of 12 industrial and 2
        office buildings in Louisiana and Texas, on February 1, 2007.
  34
 
 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, in order to achieve economies of scale where
        possible. Our Sponsor currently maintains operations in Alabama, California,
        Connecticut, District of Columbia, Florida, Georgia, Illinois, Indiana,
        Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Nebraska, New
        Jersey,
        New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South
        Carolina, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin
        and
        Puerto Rico.
  We
        have
        and will continue 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. As of December 31, 2006, we have qualified as a REIT and will
        elect
        to be taxed as a REIT for the taxable year ending December 31, 2006. We plan
        to
        own substantially all of our assets and conduct our operations through the
        Operating Partnership.
 
 We
        do not
        have employees. We entered into an advisory agreement dated April 22, 2005
        with
        Lightstone Value Plus REIT LLC, a Delaware limited liability company, which
        we
        refer to as the “Advisor,” pursuant to which the 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 pay the Advisor
        fees for services related to the investment and management of our assets,
        and we
        will reimburse the Advisor for certain expenses incurred on our behalf.
 
 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”). As of December 31, 2005, the Company had reached its minimum
        offering of $2.0 million 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 December 31, 2006, cumulative gross offering
        proceeds of approximately $42.8 million have been released to the Lightstone
        REIT and used for the purchase of a 99.99% general 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.
  35
 
 Through
        December 31, 2006, the Advisor has advanced in excess of $5.4 million to
        the
        Company for its organization and other offering costs, which consist of actual
        legal, accounting, printing and other accountable expenses (including sales
        literature and the prospectus), as well as selling commissions and dealer
        manager fees. We have reimbursed such advances to the extent of 10% of our
        gross
        offering proceeds (approximately $4.3 million as of December 31, 2006) using
        proceeds from the sale of general partnership interests to Lightstone SLP
        LLC, an affiliate of our Advisor.
 
 We
        are
        not aware of any material trends or uncertainties, favorable or unfavorable,
        other than national economic conditions affecting real estate generally,
        that
        may be reasonably anticipated to have a material impact on either capital
        resources or the revenues or income to be derived from the acquisition and
        operation of real estate and real estate related investments, other than
        those
        referred to in this Form 10-K.
 
 For
        the
        year ending December 31, 2006, the Company has qualified 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”). Accordingly, no
        provision for income tax has been recorded. 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.
 
 **2006
        Acquisitions**
 
 ***St.
        Augustine, Florida***
 
 On
        March
        31, 2006, we acquired the Belz Outlets at St. Augustine, Florida. The total
        acquisition price, including acquisition-related transaction costs, was
        approximately $26.9 million. In connection with the transaction, the Advisor
        received an acquisition fee equal to 2.75% of the purchase price, or $0.7
        million. Approximately $22.4 million of the total acquisition cost was funded
        by
        a $27.2 million mortgage loan from Wachovia Bank, National Association
        (“Wachovia”) and approximately $4.5 million was funded with offering proceeds
        from the sale of our common stock. Loan proceeds from Wachovia were also
        used to
        fund approximately $4.8 million of escrows for future leasing-related
        expenditures, real estate taxes, insurance and debt service.
 
 As
        previously disclosed in our Form 8-K/A, prior to our acquisition of the Belz
        Outlets at St. Augustine, Florida, a majority of the major tenants at the
        property had relocated to a competing property. Since the acquisition date,
        we
        have not had any major tenants leave the property. We are strategically filling
        vacancies at the property with short-term agreements while we pursue a larger
        remerchandising strategy. To date, 12 short-term in-line lease agreements
        have
        been signed, representing approximately 46,000 square feet of leasable area,
        and
        generating approximately $0.3 million in annualized revenues. The terms of
        these
        agreements vary, but typically expire within one to two years; however, we
        may
        terminate them on short notice. The property is 85% occupied, as a result
        of
        these short-term agreements, and 67% where excluded. Based on our review
        of the
        market, our remerchandising strategy may include a proposed expansion of
        the
        property. Our Property Manager has been successful at reestablishing the
        desired
        merchant mix as a result of comparable expansion strategies in similar markets.
        An expansion at this property would provide better customer traffic flow
        and
        generate additional space to accommodate the growing affluent market in this
        location.
 
 36
 
 ***Detroit,
        Michigan***
  On
        April
        26, 2006, we acquired four multifamily apartment communities. The Operating
        Partnership holds a 99% membership interest and the Lightstone REIT
        holds the remaining 1% membership interest. The properties are
        located in Southeast Michigan and were valued by an independent third-party
        appraiser retained by Citigroup Global Markets Realty Corp. (“Citigroup”) at an
        aggregate value equal to $54.3 million. The total acquisition price, excluding
        acquisition-related transaction costs, was approximately $42.2 million. In
        connection with the transaction, the Advisor received an acquisition fee
        equal
        to 2.75% of the purchase price, or approximately $1.1 million. Other closing
        and
        financing related costs totaled approximately $400,000, and net pro ration
        adjustments for assumed liabilities, prepaid rents, real estate taxes and
        interest totaled $500,000.
 
 Approximately
        $40.7 million of the total acquisition cost was funded by a mortgage loan
        from
        Citigroup, and approximately $4.6 million was funded with offering proceeds
        from
        the sale of the Company’s common stock. Loan proceeds from Citigroup were also
        used to fund approximately $1.1 million of escrows for capital improvements,
        real estate taxes, and insurance. The combined properties were 92% occupied
        at
        December 31, 2006, and are performing to our expectations.
 
 ***Omaha,
        Nebraska***
 
 On
        December 21, 2006, we acquired a retail shopping mall in Omaha, Nebraska.
        This
        property is a retail center located in Omaha, Nebraska’s dominant retail area.
        The property consists of three single-story retail buildings, is located
        on
        approximately 19.6 acres of land and contains approximately 177,303 leasable
        square feet. Built in 1999 and progressively expanded through 2005, the property
        was 97% occupied at December 31, 2006.
 
 The
        acquisition price for the property was $33.5 million, including acquisition
        fee
        of $0.9 million paid to our Advisor. Approximately $6.0 million of the
        acquisition cost was funded with offering proceeds from the sale of our common
        stock and the remainder was funded with a $27.5 million fixed rate loan from
        Wachovia that is secured by the property. Offering proceeds were also used
        to
        fund financing related costs ($.2 million) and insurance and tax reserves
        ($.2
        million). The property was independently appraised at $38.0
        million.
 
 **Recent
        Developments and Subsequent Events**
 
 ***Acquisition
        of Equity Investment in a Joint Venture***
 
 On
        January 4, 2007, the Lightstone REIT, through LVP 1407 Broadway LLC, a wholly
        owned subsidiary of the Operating Partnership entered into a joint venture
        with
        an affiliate of the Sponsor (the “Joint Venture”). On the same date, an
        indirect, wholly owned subsidiary of the Joint Venture acquired a sub-leasehold
        interest in a ground lease to an office building located at 1407 Broadway,
        New
        York, New York (the “Sublease Interest”). The seller of the Sublease Interest,
        Gettinger Associates, L.P., is not an affiliate of the Lightstone REIT or
        its
        subsidiaries. The property, a 42 story office building built in 1952, fronts
        on
        Broadway, 7th Avenue and 39th Street in midtown Manhattan. The property has
        approximately 915,000 leasable square feet, was 87.6%
        occupied (approximately 300 tenants) and is currently leased by tenants
        primarily engaged in the female apparel business. The ground lease, dated
        as of
        January 14, 1954, provides for multiple renewal rights, with the last renewal
        period expiring on December 31, 2048. The Sublease Interest runs concurrently
        with the ground lease.
 
 The
        acquisition price for the Sublease Interest was $122 million, exclusive of
        acquisition-related costs incurred by the Joint Venture ($3.5 million), pro
        rated operating expenses paid at closing ($4.1 million), financing-related
        costs
        ($1.9 million) and construction, insurance and tax reserves ($1.0 million).
        Incremental acquisition costs of approximately $1.7 million, representing
        an
        acquisition fee to the Advisor and legal fees for our counsel, were paid
        outside
        of the closing. The acquisition was funded through a combination of $26.5
        million of capital and a $106.0 million advance on a $127.3 million variable
        rate mortgage loan funded by Lehman Brothers Holding, Inc. The loan is secured
        by the Sublease Interest. Equity from our co-venturer totaled $13.5 million
        (representing a 51% ownership interest). Our capital investment, funded with
        proceeds from our common stock offering, was $13.0 million (representing
        a 49%
        ownership interest). We plan to continue an ongoing renovation project at
        the
        property that consists of lobby, elevator and window redevelopment projects.
        Additional loan proceeds of up to $21.3 million are available to fund these
        improvements.
  37
 
 ***Acquisition
        of Industrial and Office Portfolio***
  On
          February 1, 2007, the Lightstone REIT, through wholly owned subsidiaries
          of the
          Operating Partnership, acquired 12 industrial and 2 office properties
          located in New Orleans, LA (5 industrial and 2 office properties), Baton
          Rouge, LA (3 industrial properties) and San Antonio, TX (4 industrial
          properties). As a group, the properties were 92% occupied at December 31,
          2006,
          and represent approximately 1.0 million leasable square feet principally
          suitable for flexible industrial (54%), distribution (36%) and office (10%)
          uses. The properties were independently appraised at $70.7 million.
  The
          acquisition price for the properties was $63.9 million, exclusive of
          approximately $1.9 million of closing costs, approximately $1.0 million
          of
          escrow funding for immediate repairs ($0.9 million) and insurance ($0.1
          million), and financing related costs of approximately $0.6 million. In
          connection with the transaction, the Advisor received an acquisition fee
          equal
          to 2.75% of the purchase price, or approximately $1.8 million. The acquisition
          was funded through a combination of $14.4 million in offering proceeds
          and
          approximately $53.0 million in loan proceeds from a fixed rate mortgage
          loan
          secured by the properties. The Lightstone REIT does not intend to make
          significant renovations or improvements to the properties. The Lightstone
          REIT
          believes the properties are adequately insured.
 **Critical
        Accounting Policies**
 
 ***General*** .
        The
        consolidated financial statements of the Lightstone REIT included in this
        annual
        report include the accounts of Lightstone REIT and the Operating Partnership
        (over which Lightstone REIT exercises financial and operating control). 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. ****
  ***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.
  38
 
 ***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 39
        years for buildings and improvements, 5 to 10 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.*** **** Upon
        acquisition of real estate operating properties, the Company estimates the
        fair
        value of acquired tangible assets (consisting of land, building and
        improvements) and identified intangible assets and liabilities (consisting
        of
        above and below-market leases, in-place leases and tenant relationships),
        assumed debt issued in accordance with SFAS No. 141, Business Combinations
        (“SFAS No. 141”), at the date of acquisition, based on evaluation of
        information and estimates available at that date. Based on these estimates,
        the
        Company allocates the initial purchase price to the applicable assets and
        liabilities. As final information regarding fair value of the assets acquired
        and liabilities assumed is received and estimates are refined, appropriate
        adjustments are made to the purchase price allocation. The allocations are
        finalized within twelve months of the acquisition date.
 
 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.
  39
 
 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. Currently,
        our
        leases range from one month to 11 years. The value of customer relationship
        intangibles will be amortized to expense over the initial term 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 will 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 an entity, such entities will 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, we will record an impairment
        charge.
  40
 
 ***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.
 
 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 stockholders’ 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.
 
 **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 Lightstone REIT are
        expensed as incurred. Such fees include acquisition fees associated with
        the
        purchase of a joint venture interest, 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.*
  41
 
 Expense
        reimbursements made to both our Advisor and Property Manager will be expensed
        or
        capitalized to the basis of acquired assets, as appropriate.
 
 Lightstone
        SLP, LLC, an affiliate of our Sponsor, has and continues to purchase special
        general partner interests in the Operating Partnership. These special
        general partner interests, 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. Lightstone SLP LLC has not received any portion of regular
        distributions made by the Operating Partnership through March 8,
        2007.
 
 Our
        Advisor is responsible for offering and organizational costs exceeding 10%
        of
        the gross offering proceeds without recourse to the Company. As of December
        31,
        2006, the Company had fully reimbursed the Advisor’s cash advances used for
        offering costs totaling 10% of gross offering proceeds or $4.3 million, through
        that date.
 
 **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 stockholders. REITs are generally not
        subject to federal income tax on taxable income that they distribute to their
        stockholders. 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 Lightstone
        REIT
        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.
 
 The
        Company expects to report a net operating loss for Federal income tax purposes
        and to carry-forward such loss from December 31, 2006. The availability of
        such
        loss carry-forward will begin to expire in 2026. As the Company does not
        consider it likely that it will realize any future benefit from its loss
        carry-forward, any deferred asset resulting from the final determination
        of its
        tax loss for the year ended December 31, 2006 will be fully offset by a
        valuation allowance of the same amount.
 
 **Results
        of Operations**
 
 We
        commenced operations on February 1, 2006 upon the release of our offering
        proceeds from escrow. We acquired our three initial real estate properties
        on
        March 31, 2006, June 29, 2006, and December 21, 2006, respectively. Our
        management is not aware of any material trends or uncertainties, other than
        national economic conditions affecting real estate generally that may reasonably
        be expected to have a material impact, favorable or unfavorable, on revenues
        or
        income from the acquisition, management and operation of real estate and
        real
        estate related investments.
 
 ***Comparison
        of the twelve months ended December 31, 2006 versus the twelve months ended
        December 31, 2005***
 
 ***Revenues***
  Total
        revenues increased 100%, or $8.3 million for the twelve months ended December
        31, 2006 compared to $0 for the same period last year. Rental income increased
        by approximately $7.3 million primarily as a result of our acquiring the
        Belz
        Outlets in St. Augustine, Florida on March 31, 2006 and the southeastern
        Michigan multi-family properties on June 29, 2006. Tenant recovery income
        increased by approximately $1.0 million primarily as a result of our acquiring
        the Belz Outlets in St. Augustine, Florida. The Lightstone REIT also acquired
        a
        retail property in Omaha, Nebraska on December 21, 2006. Due to the limited
        period of ownership, it did not have a significant impact on our 2006 financial
        results.
  42
  ***Total
        Property Expenses***
  Total
        expenses increased by $7.9 million to approximately $8.0 million, for the
        twelve
        months ended December 31, 2006, compared to $0.1 million for the same period
        last year. Increases in property operating expenses ($3.7 million), real
        estate
        taxes ($0.9 million), and depreciation and amortization ($2.7 million) were
        primarily the result of the acquisition of two new properties on March 31,
        2006
        and June 29, 2006, respectively. The Lightstone REIT also acquired a retail
        property in Omaha, Nebraska on December 21, 2006. Due to the limited period
        of
        ownership, it did not have a significant impact on our 2006 financial results.
 
 ***General
        and administrative expenses***
 
 General
        and administrative costs increased by $0.7 million to $0.8 million, primarily
        as
        a result of the payment of asset management fees, director’s and officer’s
        liability insurance and fees to our board of directors, auditors and
        attorneys. General and administrative expenses for the year ended
        December 31, 2005 totaled $117,571. We expect general and administrative
        expenses to increase in the future as a result of acquisitions in future
        periods. No fees of any kind were paid to the Advisor for the year ended
        December 31, 2005.
  ***Depreciation
        and Amortization***
  Depreciation
        and amortization expense increased by $2.7 million, in 2006 as compared to
        2005 primarily due to the acquisition and financing of two new properties
        on
        March 31, 2006 and June 29, 2006, respectively. The Lightstone REIT also
        acquired a retail property in Omaha, Nebraska on December 21, 2006. Due to
        the
        limited period of ownership, it did not have a significant impact on our
        2006
        financial results.
 
 ***Other
        Income***
  Other
        income increased by approximately $0.8 million due principally to $0.5 million
        of interest income on the short-term investment of cumulative Offering proceeds
        during the twelve-month period ending December 31, 2006 as well as $0.3 million
        related to vending and other ancillary revenue sources at our
        properties.
  ***Interest
        expense***
  Interest
        expense increased 100%, or approximately $2.6 million for the twelve months
        ended December 31, 2006, primarily as a result of the acquisition and financing
        of two new properties on March 31, 2006 and June 29, 2006, respectively.
        The
        Lightstone REIT also acquired a retail property in Omaha, Nebraska on December
        21, 2006. Due to the limited period of ownership, it did not have a significant
        impact on our 2006 financial results.
 
 ***Minority
        interest***
 
 The
        loss
        allocated to minority interests of approximately $86 and $1,164 for the year
        ended December 31, 2006 and 2005, respectively, relates to the interests in
        the Operating Partnership held by our Sponsor.
  43
  ***Comparison
        of the twelve months ended December 31, 2005 versus the twelve months ended
        December 31, 2004***
 
 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.
 
 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, but prior to our commencement of real estate
        operations.
 
 General
        and administrative expenses for the year ended December 31, 2005 totaled
        $117,571 as compared to $0 in 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 years ended December 31, 2005 and December
        31, 2004, respectively.
 
 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**
 
 **Overview:**
 
 We
        intend
        that rental revenue will be the principal source of funds to pay operating
        expenses, debt service, capital expenditures and dividends, excluding
        non-recurring capital expenditures. To the extent that our cash flow from
        operating activities is insufficient to finance non-recurring capital
        expenditures such as property acquisitions, development and construction
        costs
        and other capital expenditures, we are dependent upon the net proceeds to
        be
        received from our public offering to conduct such proposed activities. We
        have
        financed and expect to continue to finance such activities through debt and
        equity financings. 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
        expect
        to meet our short-term liquidity requirements generally through funds received
        in our public offering, working capital, and net cash provided by operating
        activities. We frequently examine potential property acquisitions and
        development projects and, at any given time, one or more acquisitions or
        development projects may be under consideration. Accordingly, the ability
        to
        fund property acquisitions and development projects is a major part of our
        financing requirements. We expect to meet our financing requirements through
        funds generated from our public offering and long-term and short-term
        borrowings.
 
 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.
 
 Our
        source 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 $95.5 million of outstanding mortgage debt. 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.
  44
 
 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. As of December 31, 2006, our total borrowings
        represented 237% of net assets.
  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.
 
 Total
        asset management and acquisition fees of $3.0 million and $0 were paid to
        the
        Advisor for the years ended December 31, 2006 and 2005, respectively. No
        fees of any kind were due or paid to our Advisor during 2004. As of
        December 31, 2006, approximately $0.5 million was due to our Property
        Manager, an affiliate of our Advisor, for the reimbursement of property level
        operating expenses. As of December 31, 2005, approximately $0.3 million was
        due
        to the Advisor for the 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 Lightstone REIT ($3,000). This amount was fully repaid
        during the year ended December 31, 2006.
  45
 
 As
        of
        December 31, 2006, we had approximately $19.3 million of cash and cash
        equivalents on hand and $8.4 million of refundable escrow deposits. Our cash
        and
        cash equivalents on hand resulted primarily from proceeds from our Offering.
        The
        refundable deposits were released in January 2007 after the expiration of
        the
        due diligence periods for the acquisition of a joint venture interest in
        a
        ground lease to an office building and a portfolio of 12 industrial and 2
        office buildings.
  ***Summary
        of Cash Flows.*** The
        following summary discussion of our cash flows is based on the consolidated
        statements of cash flows and is not meant to be an all-inclusive discussion
        of
        the changes in our cash flows for the periods presented below (in
        thousands):
 **Year
                    Ended December 31, 2006**
                
                **Year
                    Ended December 31, 2005**
                
                **Period
                    from June 8, 2004 (date of inception) to December 31,
                    2004**Cash
                    flows provided by (used in) operating activities
                
                $
                1,722,853
                
                $
                (80,060
                )
                $
                -Cash
                    flows used in investing activities
                
                
                (119,467,655
                )
                
                -
                
                
                -Cash
                    flows provided by financing activities
                
                
                136,820,482
                
                
                79,601
                
                
                205,489Cash,
                    beginning of the period
                
                
                205,030
                
                
                205,489
                
                
                -Cash,
                    end of the period
                
                $
                19,280,710
                
                $
                205,030
                
                $
                205,489
  Our
        principal source of cash flow is currently derived from the issuance of our
        common stock and the operation of our rental properties. We intend that our
        properties will provide a relatively consistent stream of cash flow that
        provides us with resources to fund operating expenses, debt service and
        quarterly dividends. Cash flows from operating activities were generated
        primarily from our retail property in St. Augustine, Florida acquired in
        March
        of 2006, and the four residential apartment communities we acquired in June
        of
        2006.
  Our
        principal demands for liquidity are our property operating expenses, real
        estate
        taxes, insurance, tenant improvements, leasing costs, acquisition and
        development activities, debt service and distributions to our stockholders.
        The
        principal sources of funding for our operations are operating cash flows,
        the
        sale of properties, the issuance of equity and debt securities and the placement
        of mortgage loans.
  Cash
        used
        in investing activities resulted from the purchases of two retail properties
        and
        four residential apartment communities in 2006. For the year ended December
        31,
        2006, cash used in investing consisted of $104.1 million used in the purchase
        of
        investment property, $8.4 million in refundable deposits for the purchase
        of
        real estate, and $6.9 million of funding for restricted escrows related to
        completed acquisitions.
  Cash
        provided by financing activities is primarily the proceeds from mortgage
        financing ($95.5 million) and the proceeds from the issuance of common stock
        ($42.6 million).
  46
  At
        December 31, 2006, we had mortgage debt totaling approximately $95.5 million.
        There are three secured loans, two maturing in 2016, and one in 2017. The
        loans
        bear interest at a fixed annual rate of 6.09%, 5.96% and 5.49%, respectively.
        Monthly installments of interest only are required through the first 12,
        60 and
        60 months, respectively, and monthly installments of principal and interest
        are
        required throughout the remainder of their stated terms. At their maturity,
        approximately $23.4 million, $37.9 million, and $22.6 million respectively,
        will
        be due, assuming no prior principal prepayment. Each of the loans is secured
        by
        acquired real estate and is non-recourse to the Company.
 
 The
        following table shows the mortgage debt maturing during the next five
        years:
 
 2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              Thereafter
              
              TotalFixed
                  rate mortgages
              
              $
              244,904
              
              $
              344,388
              
              $
              365,957
              
              $
              388,876
              
              $
              661,414
              
              $
              93,469,461
              
              $
              95,475,000
  New
        Accounting Pronouncements
 
 In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements* .
        This
        Statement applies under other accounting pronouncements that require or permit
        fair value measurements. Accordingly, this Statement does not require any
        new
        fair value measurements. However, for some entities, the application of this
        Statement will change current practice. This Statement clarifies that market
        participant assumptions include assumptions about risk, for example, the
        risk
        inherent in a particular valuation technique used to measure fair value (such
        as
        a pricing model) and/or risk inherent in the inputs to the valuation technique.
        This Statement clarifies that market participant assumptions also include
        assumptions about the effect of a restriction on the sale or use of an asset.
        This Statement also clarifies that a fair value measurement for a liability
        reflects its nonperformance risk. This Statement is effective for financial
        statements issued for fiscal years beginning after November 15, 2007, and
        interim periods within those fiscal years. The Company is currently evaluating
        the impact that the adoption of SFAS No. 157, but does not expect its adoption
        to have a material impact on the Company’s financial position or results of
        operations.
 
 In
        June
        2006, the FASB issued FIN No. 48, *Accounting
        for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
        109* .
        This
        Interpretation clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise’s financial statements in accordance with FASB
        Statement No. 109, *Accounting
        for Income Taxes* .
        This
        Interpretation prescribes a recognition threshold and measurement attribute
        for
        the financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return. This Interpretation also provides guidance
        on derecognition, classification, interest and penalties, accounting in interim
        periods, disclosure, and transition. This Interpretation is effective for
        fiscal
        years beginning after December 15, 2006. The Company does not expect the
        adoption of FIN No. 48 to have a material impact on the Company’s financial
        position or results of operations.
  47
 
 In
        September 2006, the SEC issued Staff Accounting Bulletin No. 108 to address
        diversity in practice in quantifying financial statement misstatements and
        the
        potential under current practice for the build up of improper amounts on
        the
        balance sheet. SAB 108 provides guidance on the consideration of the effects
        of
        prior year misstatements in quantifying current year misstatements for the
        purpose of a materiality assessment. The Company does not believe that the
        adoption of SAB 108 will have any effect on the Company’s consolidated financial
        statements.
  In
        September 2005, the Emerging Issues Task Force (“EITF”) issued Issue 04-05,
“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.” The EITF addresses whether rights held by the limited
        partner(s) preclude consolidation in circumstances in which the sole general
        partner would consolidate the limited partnership in accordance with U.S.
        generally accepted accounting principals. The assessment of limited partners’
rights and their impact on the presumption of control of the limited partnership
        by the sole general partner should be made when an investor becomes the sole
        general partner and should be reassessed if (i) there is a change to the
        terms
        or in the exercisability of the rights of the limited partners, (ii) the
        sole
        general partner increases or decreases its ownership of limited partnership
        interests, or (iii) there is an increase or decrease in the number of
        outstanding limited partnership interests. This issue is effective no later
        than
        for fiscal years beginning after December 15, 2005, and as of June 29, 2005
        for
        new or modified arrangements. The Company adopted this statement in the first
        quarter of 2006. Adoption of EITF 04-05 had no material impact on the Company’s
        financial position or results of operations.
  48
 
 **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
        borrowings used to maintain liquidity and fund the expansion and refinancing
        of
        our real estate investment portfolio and operations. Our interest rate risk
        management objectives will be to limit the impact of interest rate changes
        on
        earnings, prepayment penalties and cash flows and to lower overall borrowing
        costs while taking into account variable interest rate risk. To achieve our
        objectives, we may borrow at fixed rates or variable rates. We may also enter
        into derivative financial instruments such as interest rate swaps and caps
        in
        order to mitigate our interest rate risk on a related financial instrument.
        We
        will not enter into derivative or interest rate transactions for speculative
        purposes. We have not entered into any swap agreements or derative transactions
        to date.
 
 At
        December 31, 2006, we had mortgage debt totaling approximately $95.5 million.
        There are three secured loans, two maturing in 2016, and one in 2017. The
        loans
        bear interest at a fixed annual rate of 6.09%, 5.96% and 5.49%, respectively.
        Monthly installments of interest only are required through the first 12,
        60 and
        60 months, respectively, and monthly installments of principal and interest
        are
        required throughout the remainder of their stated terms. At their maturity,
        approximately $23.4 million, $37.9 million, and $22.6 million respectively,
        will
        be due, assuming no prior principal prepayment. Each of the loans is secured
        by
        acquired real estate and is non-recourse to the Company.
 
 The
        following table shows the mortgage debt maturing during the next five
        years:
 
 2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              Thereafter
              
              TotalFixed
                  rate mortgages
              
              $
              244,904
              
              $
              344,388
              
              $
              365,957
              
              $
              388,876
              
              $
              661,414
              
              $
              93,469,461
              
              $
              95,475,000
  Our
        combined future earnings, cash flows and fair values relating to financial
        instruments are currently not dependent upon prevalent market rates of interest
        as a result of our having only fixed rate debt and limited cash balances
        available for investment.  The
        fair
        value of our debt approximates its carrying amount at December 31,
        2006.
  In
        addition to changes in interest rates, the value of our real estate and real
        estate related investments is subject to fluctuations based on changes in
        local
        and regional economic conditions and changes in the creditworthiness of lessees,
        which may affect our ability to refinance our debt if necessary. As of December
        31, 2006, the Company has no off-balance sheet arrangements nor has it entered
        into any derivative instruments.
 
 49
  **ITEM
        8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
  **Lightstone
        Value Plus Real Estate Investment Trust, Inc. and
        Subsidiaries**
 **(a
        Maryland corporation)**
 **Index**PageReport
                    of Independent Registered Public Accounting Firm on Consolidated
                    Financial
                    Statements
                
                51Financial
                    Statements:Consolidated
                    Balance Sheets as of December 31, 2006 and 2005
                
                52Consolidated
                    Statements of Operations for the years ended December 31, 2006
                    and 2005
                    and the period from June 8, 2004 (date of inception) to December
                    31,
                    2004
                
                53Consolidated
                    Statements of Stockholders' Equity for the years ended December
                    31, 2006
                    and 2005 and the period from June 8, 2004 (date of inception)
                    to December
                    31, 2004
                
                54Consolidated
                    Statements of Cash Flows for the years ended December 31, 2006
                    and 2005
                    and the period from June 8, 2004 (date of inception) to December
                    31,
                    2004
                
                55Notes
                    to Consolidated Financial Statements
                
                56Real Estate
                  and
                  Accumulated Depreciation  (Schedule III)
                
                75
  Schedules not filed:
  All schedules other than the one listed
          in the
          Index have been omitted as the required information is inapplicable or
          the
          information is presented in the financial statements or related
          notes.
  50
 
 ***Report
        of Independent Registered Public Accounting Firm***
 
 The
        Board
        of Directors and Stockholders
 Lightstone
        Value Plus Real Estate Investment Trust, Inc. and its
        Subsidiaries
  We
        have
        audited the accompanying consolidated balance sheets of Lightstone Value
        Plus
        Real Estate Investment Trust, Inc. and Subsidiaries (the “Company’) as of
        December 31, 2006 and 2005, and the related consolidated statements of
        operations, stockholders’ equity and cash flows for the years then ended, and
        for the period from June 8, 2004 (date of inception) through 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 audits.
  We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audit included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the Company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit 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 audits provide 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 Subsidiaries as of December
        31, 2006 and 2005, and the results of their operations and their cash flows
        for
        the years then ended, and for the period from June 8, 2004 (date of inception)
        through December 31, 2004, in conformity with accounting principles generally
        accepted in the United States of America. Also,
        in
        our opinion, the related financial statement schedule, when considered in
        relation to the basic consolidated financial statements taken as a whole,
        presents fairly, in all material respects, the information set forth
        therein.
  /s/
        Amper, Politziner & Mattia, P.C.
 
 March
        16,
        2007
 Edison,
        New Jersey
  51


**PART II.
        CONTINUED:**
 **ITEM
        8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
        CONTINUED:**
 
 **LIGHTSTONE
        VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.AND
        SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **As
        of December 31, 2006 and 2005**


**December
                  31,**
                **2006**
              
              **December
                  31,**
                **2005*****Assets***Investment
                  property:Land
              
              $
              20,141,357
              
              $
              -Buildings
                  and improvements
              
              
              82,217,115
              
              
              -102,358,472
              
              
              -Less
                  accumulated depreciation and amortization
              
              
              (1,184,590
              )
              
              -Net
                  investment property
              
              
              101,173,882
              
              
              -Cash
                  and cash equivalents
              
              
              19,280,710
              
              
              205,030Restricted
                  escrows
              
              
              6,912,578
              
              
              -Deposit
                  for purchase of real estate
              
              
              8,435,000
              
              
              -Due
                  from escrow agent
              
              
              163,949
              
              
              -Tenant
                  and other accounts receivable
              
              
              316,232
              
              
              -Acquired
                  in-place lease intangibles (net of accumulated amortization of
                  $1,365,512
                  and $0, respectively)
              
              
              1,801,678
              
              
              -Acquired
                  above market lease intangibles (net of accumulated amortization
                  of $75,258
                  and $0, respectively)
              
              
              601,987
              
              
              -Deferred
                  leasing costs (net of accumulated amortization of $123,230 and
                  $0,
                  respectively)
              
              
              758,438
              
              
              -Deferred
                  financing costs (net of accumulated amortization of $26,813 and
                  $0,
                  respectively)
              
              
              691,777
              
              
              -Deferred
                  offering costs
              
              
              -
              
              
              225,966Prepaid
                  expenses and other assets
              
              
              571,986
              
              
              -**Total
                  Assets**
              
              $
              140,708,217
              
              $
              430,996***Liabilities
                  and Stockholders' Equity***Mortgage
                  payable
              
              $
              95,475,000
              
              $
              -Accounts
                  payable and accrued expenses
              
              
              1,980,052
              
              
              37,511Tenant
                  allowances and deposits payable
              
              
              301,970
              
              
              -Distributions
                  payable
              
              
              601,286
              
              
              -Prepaid
                  rental revenues
              
              
              81,020
              
              
              -Acquired
                  below market lease intangibles (net of accumulated amortization
                  of
                  $953,435 and $0, respectively)
              
              
              2,011,063
              
              
              -Due
                  to affiliate
              
              
              -
              
              
              309,056100,450,391
              
              
              346,567Minority
                  interest in partnership
              
              
              4,282,122
              
              
              836Commitments
                  and contingencies
              
              
              -
              
              
              -Stockholders’
                  equity:Preferred
                  shares, 10,000,000 shares authorized, none outstanding
              
              
              -
              
              
              -Common
                  stock, $.01 par value; 60,000,000 shares authorized, 4,316,989
                  and 20,000
                  shares issued and outstanding, respectively
              
              
              43,170
              
              
              200Additional
                  paid-in-capital
              
              
              38,686,993
              
              
              199,800Accumulated
                  distributions in addition to net loss
              
              
              (2,754,459
              )
              
              (116,407
              )Total
                  stockholders’ equity
              
              
              35,975,704
              
              
              83,593**Total
                  Liabilities and Stockholders' Equity**
              
              $
              140,708,217
              
              $
              430,996




The
        Company’s notes are an integral part of these consolidated financial
        statements.
  52




**PART II.
        CONTINUED:**
 **ITEM
        8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
        CONTINUED:**
 
 **LIGHTSTONE
        VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **For
        the Years ended December 31, 2006 and 2005 and**
 **For
        the Period from June 8, 2004 (date of inception) to December 31,
        2004**
  Year
                    Ended December 31, 2006
                
                Year
                    Ended
                  December
                    31, 2005
                
                Period
                    from June 8, 2004 (date of inception) to December 31, 2004Revenues:Rental
                    income
                
                $
                7,271,738
                
                $
                -
                
                $
                -Tenant
                    recovery income
                
                
                990,929
                
                
                -
                
                
                -8,262,667
                
                
                -
                
                
                -Expenses:Property
                    operating expenses
                
                
                3,656,914
                
                
                -
                
                
                -Real
                    estate taxes
                
                
                882,212
                
                
                -
                
                
                -General
                    and administrative costs
                
                
                808,502
                
                
                117,571
                
                
                -Depreciation
                    and amortization
                
                
                2,674,819
                
                
                -
                
                
                -8,022,447
                
                
                117,571
                
                
                -Operating
                    income (loss)
                
                
                240,220
                
                
                (117,571
                )
                
                -Other
                    income
                
                
                810,877
                
                
                -
                
                
                -Interest
                    expense
                
                
                (2,587,527
                )
                
                -
                
                
                -Minority
                    interest
                
                
                86
                
                
                1,164
                
                
                -Net
                    loss
                
                $
                (1,536,344
                )
                $
                (116,407
                )
                $
                -Net
                    loss per common share, basic and diluted
                
                $
                (0.96
                )
                $
                (5.82
                )
                $
                -Weighted
                    average number of common shares outstanding, basic and
                    diluted
                
                
                1,594,060
                
                
                20,000
                
                
                20,000


The
        Company’s notes are an integral part of these consolidated financial
        statements.
  53




**PART II.
        CONTINUED:**
 **ITEM
        8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
        CONTINUED:**
 
 **LIGHTSTONE
        VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDER’S EQUITY**
 **For
        the Years ended December 31, 2006 and December 31, 2005 and**
 **For
        the Period from June 8, 2004 (date of inception) to December 31,
        2004**
 AccumulatedPreferred
                      Shares
                
                Common
                      Shares
                
                Additional
                
                Distributions
                
                TotalPreferred
                
                
                
                Common
                
                
                
                Paid-In
                
                in Addition
                
                Stockholders'Shares
                
                Amount
                
                Shares
                
                Amount
                
                Capital
                
                to
                    Net Loss
                
                EquityBALANCE,
                    June 8, 2004 (date of inception)
                
                
                -
                
                $
                -
                
                
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -Issuance
                    of common shares
                
                
                
                
                
                
                
                
                20,000
                
                
                200
                
                
                199,800
                
                
                
                
                
                200,000BALANCE,
                    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
                )
                $
                83,593Net
                    loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,536,344
                )
                
                (1,536,344
                )Distributions
                    declared
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,101,708
                )
                
                (1,101,708
                )Proceeds
                    from offering
                
                
                -
                
                
                -
                
                
                4,276,165
                
                
                42,762
                
                
                42,570,940
                
                
                -
                
                
                42,613,702Selling
                    commissions and dealer manager fees
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (3,337,501
                )
                
                -
                
                
                (3,337,501
                )Other
                    offering costs
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (943,869
                )
                
                -
                
                
                (943,869
                )Proceeds
                    from distribution reinvestment program
                
                
                
                
                
                
                
                
                20,824
                
                
                208
                
                
                197,623
                
                
                -
                
                
                197,831BALANCE,
                    December 31, 2006
                
                
                -
                
                $
                -
                
                
                4,316,989
                
                $
                43,170
                
                $
                38,686,993
                
                $
                (2,754,459
                )
                $
                35,975,704




The
        Company’s notes are an integral part of these consolidated financial
        statements.****
  54


**PART II.
        CONTINUED:**
 **ITEM
        8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
        CONTINUED:**
 
 **LIGHTSTONE
        VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
        SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **For
        the Years ended December 31, 2006 and December 31, 2005 and**
 **For
        the Period from June 8, 2004 (date of inception) to December 31,
        2004**


**Year
                  Ended December 31, 2006**
              
              **Year
                  Ended December 31, 2005**
              
              **Period
                  from June 8, 2004 (date of inception) to December 31,
                  2004****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (1,536,344
              )
              $
              (116,407
              )
              $
              -Loss
                  allocated to minority interests
              
              
              (86
              )
              
              (1,164
              )
              
              -Adjustments
                  to reconcile net loss to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              1,186,076
              
              
              -
              
              
              -Amortization
                  of deferred financing costs
              
              
              26,813
              
              
              -
              
              
              -Amortization
                  of deferred leasing costs
              
              
              123,230Amortization
                  of above and below-market lease intangibles and in place
                  leases
              
              
              487,335
              
              
              -
              
              
              -Changes
                  in assets and liabilities:Increase
                  in prepaid expenses and other assets
              
              
              (573,470
              )
              
              -
              
              
              -Increase
                  in tenant and other accounts receivable
              
              
              (316,232
              )Increase
                  in tenant allowance and security deposits payable
              
              
              301,970
              
              
              -
              
              
              -Increase
                  in accounts payable and accrued expenses
              
              
              1,942,541
              
              
              37,511
              
              
              -Increase
                  in prepaid rents
              
              
              81,020Net
                  cash provided by (used in) operating activities
              
              
              1,722,853
              
              
              (80,060
              )
              
              -**CASH
                  FLOWS USED IN INVESTING ACTIVITIES:**Purchase
                  of investment property
              
              
              (104,120,077
              )
              
              -
              
              
              -Funding
                  of real estate purchase deposit
              
              
              (8,435,000
              )
              
              -
              
              
              -Funding
                  of restricted escrows
              
              
              (6,912,578
              )
              
              -
              
              
              -Net
                  cash used in investing activities
              
              
              (119,467,655
              )
              
              -
              
              
              -**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from mortgage financing
              
              
              95,475,000
              
              
              -
              
              
              -Payment
                  of loan fees and expenses
              
              
              (718,590
              )
              
              -
              
              
              -Proceeds
                  from issuance of common stock
              
              
              42,613,702
              
              
              -
              
              
              200,000Proceeds
                  from issuance of special general partnership interests
              
              
              4,281,369
              
              
              -
              
              
              -Payment
                  of offering costs
              
              
              (4,055,404
              )
              
              (225,966
              )
              
              -Increase
                  in amounts due from escrow agent
              
              
              (163,949
              )Increase
                  (decrease) in amounts due to affiliates, net
              
              
              (309,055
              )
              
              305,567
              
              
              5,489Distributions
                  paid
              
              
              (302,591
              )
              
              -
              
              
              -Net
                  cash provided by financing activities
              
              
              136,820,482
              
              
              79,601
              
              
              205,489**Net
                  change in cash**
              
              
              19,075,680
              
              
              (459
              )
              
              205,489**Cash,
                  beginning of period**
              
              
              205,030
              
              
              205,489
              
              
              -**Cash,
                  end of period**
              
              $
              19,280,710
              
              $
              205,030
              
              $
              205,489**Supplemental
                  disclosure of cash flow information:**Cash
                  paid for interest
              
              $
              2,329,904
              
              $
              -
              
              $
              -Dividends
                  declared
              
              $
              601,286
              
              
              -
              
              $
              -




The Company’s notes are an integral part of these consolidated
      financial statements.




55


**PART II.
      CONTINUED:**


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





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


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005 and**


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





**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 has qualified as a real
      estate investment trust (“REIT”) for the year ending December 31, 2006. 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% general partnership interest at December 31,
      2004
      and 2005, and 99.99% general partnership interest at December 31, 2006. 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
      December 31, 2006, cumulative gross offering proceeds of approximately $42.8
      million have been released to the Lightstone REIT and used for the purchase
      of a
      99.99% general 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.





56


**PART II.
      CONTINUED:**


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





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


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005 and**


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


**(continued)**


Lightstone
      SLP, LLC, an affiliate of the Advisor, intends to periodically purchase special
      general partner interests 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 repay
      advances from the Advisor that were used to fund organizational and offering
      costs incurred by the Company. Through December 31, 2006, the Lightstone REIT
      offset proceeds of approximately $4.2 million from the sale of special general
      partnership interests against approximately $5.4 million of Advisor cash
      advances used for offering costs.





The
      Advisor is responsible for offering and organizational costs exceeding 10%
      of
      the gross offering proceeds without recourse to the Company. Since its
      inception, and through December 31, 2006, the Advisor has not allocated any
      organizational costs to the Company. Advances for offering costs in excess
      of
      the 10% threshold (approximately $1.1 million at December 31, 2006) will only
      be
      reimbursed to the Advisor as additional offering proceeds are received by 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. During 2006, the Company has completed the acquisition
      of
      the Belz Factory Outlet World in St. Augustine, Florida, four multi-family
      communities in Southeast Michigan, and a retail power center in Omaha, Nebraska.
      All of the acquired properties are managed by affiliates of Lightstone Value
      Plus REIT Management LLC, (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 9, Related Party Transactions).


****


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




Basis
      of Presentation




The
      consolidated financial statements include the accounts of the Company and the
      Operating Partnership. As of December 31, 2006, the Company had a 99.99% general
      partnership interest in the Operating Partnership. All inter-company balances
      and transactions have been eliminated in consolidation.





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





57


**PART II.
        CONTINUED:**
 **ITEM
        8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
        CONTINUED:**
 
 **LIGHTSTONE
        VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
        SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2006 and 2005 and**
 **For
        the Period from June 8, 2004 (date of inception) to December 31,
        2004**
 **(continued)**




Cash
      and Cash Equivalents




The
      Company considers all highly liquid investments with an original maturity of
      three months or less when purchased to be cash equivalents. All cash and cash
      equivalents are held in commercial paper and money market funds. To date, the
      Company has not experienced any losses on its cash and cash equivalents.




Revenue
      Recognition




Minimum
      rents are recognized on an accrual basis, over the terms of the related leases
      on a straight-line basis. The capitalized above-market lease values and the
      capitalized below-market lease values are amortized as an adjustment to rental
      income over the initial lease term. Percentage rents, which are based on
      commercial tenants’ sales, are recognized once the sales reported by such
      tenants exceed any applicable breakpoints as specified in the tenants’ leases.
      Recoveries from commercial tenants for real estate taxes, insurance and other
      operating expenses, and from residential tenants for utility costs, are
      recognized as revenues in the period that the applicable costs are incurred.
      The
      Company recognizes differences between estimated recoveries and the final billed
      amounts in the subsequent year.





Accounts
      Receivable





The
      Company makes estimates of the uncollectability of its accounts receivable
      related to base rents, expense reimbursements and other revenues. The Company
      analyzes accounts receivable and historical bad debt levels, customer credit
      worthiness and current economic trends when evaluating the adequacy of the
      allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed
      and estimates are made in connection with the expected recovery of pre-petition
      and post-petition claims. The Company’s reported net income is directly affected
      by management’s estimate of the collectability of accounts
      receivable





Investment
      in Real Estate




*Accounting
      for Acquisitions*




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




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





58
 
 **PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**


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





The
      aggregate value of in-place leases is determined by evaluating various factors,
      including an estimate of carrying costs during the expected lease-up periods,
      current market conditions and similar leases. In estimating carrying costs,
      management includes real estate taxes, insurance and other operating expenses,
      and estimates of lost rental revenue during the expected lease-up periods based
      on current market demand. Management also estimates costs to execute similar
      leases including leasing commissions, legal and other related costs. The value
      assigned to this intangible asset is amortized over the remaining lease terms
      ranging from one month to approximately 11 years. Optional renewal periods
      were
      not considered.





The
      aggregate value of other acquired intangible assets includes tenant
      relationships. Factors considered by management in assigning a value to these
      relationships include: assumptions of probability of lease renewals, investment
      in tenant improvements, leasing commissions and an approximate time lapse in
      rental income while a new tenant is located. The value assigned to this
      intangible asset is amortized over the remaining lease terms ranging from one
      month to approximately 11 years.





*Carrying
      Value of Assets*




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





*Impairment
      Evaluation*




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





The
      Company evaluates the long-lived assets, in accordance with SFAS No. 144 on
      a
      quarterly basis and will record an impairment charge when there is an indicator
      of impairment and the undiscounted projected cash flows are less than the
      carrying amount for a particular property. Management concluded no impairment
      adjustment was required at December 31, 2006. The estimated cash flows used
      for
      the impairment analysis and the determination of estimated fair value are based
      on the Company’s plans for the respective assets and the Company’s views of
      market and economic conditions. The estimates consider matters such as current
      and historical rental rates, occupancies for the respective Properties and
      comparable properties, and recent sales data for comparable properties. Changes
      in estimated future cash flows due to changes in the Company’s plans or views of
      market and economic conditions could result in recognition of impairment losses,
      which, under the applicable accounting guidance, could be substantial.





59


**PART II.
        CONTINUED:**
 **ITEM
        8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
        CONTINUED:**
 
 **LIGHTSTONE
        VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
        SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2006 and 2005 and**
 **For
        the Period from June 8, 2004 (date of inception) to December 31,
        2004**
 **(continued)**


Depreciation
      and Amortization




Depreciation
      expense for real estate assets is computed using a straight-line method using
      a
      weighted average composite life of thirty-nine years for buildings and
      improvements and five to ten years for equipment and fixtures. Expenditures
      for
      tenant improvements and construction allowances paid to commercial tenants
      are
      capitalized and amortized over the initial term of each lease, currently one
      month to 11 years. Maintenance and repairs are charged to expense as
      incurred.




Deferred
      Costs




The
      Company capitalizes initial direct costs in accordance with SFAS No. 91,
“Accounting for Nonrefundable Fees and Costs Associated with Originating or
      Acquiring Loans and Initial Direct Costs of Leases.” The costs are capitalized
      upon the execution of the loan or lease and amortized over the initial term
      of
      the corresponding loan or lease. Amortization of deferred loan costs begins
      in
      the period during which the loan was originated. Deferred leasing costs are
      not
      amortized to expense until the earlier of the store opening date or the date
      the
      tenant’s lease obligation begins.





Income
      Taxes




For
      the
      year ending December 31, 2006, the Company has elected 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”). Accordingly, no
      provision for income tax has been recorded.





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.





The
      Company expects to report a net operating loss for Federal income tax purposes
      and to carry-forward such loss from December 31, 2006. The availability of
      such
      loss carry-forward will begin to expire in 2026. As the Company does not
      consider it likely that it will realize any future benefit from its loss
      carry-forward, any deferred asset resulting from the final determination of
      its
      tax loss for the year ended December 31, 2006 will be fully offset by a
      valuation allowance of the same amount.





Organization
      and Offering Costs




The
      Company estimates offering costs of approximately $300,000 if the minimum
      offering of 200,000 shares is sold, and approximately $30,000,000 if the maximum
      offering of 30,000,000 shares is sold. 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 a reduction
      against additional paid-in capital (“APIC”) as offering proceeds are released to
      the Company.




60
 
 **PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**


As
      of
      December 31, 2006, the Advisor has advanced approximately $5.4 million to the
      Company for offering costs, including commission and dealer manager fees. Based
      on gross proceeds of approximately $42.8 million from its public offering
      as of December 31, 2006, the Company’s responsibility for the reimbursement of
      advances for commissions and dealer manager fees was limited to
      approximately $3.3 million (or 8% of the gross offering proceeds), and its
      obligation for advances for organization and third-party offering costs was
      limited to approximately $1.0 million (or 2% of the gross offering proceeds).





Financial
      Instruments




The
      carrying amounts of cash and cash equivalents, accounts receivable and accounts
      payable approximate their fair values because of the short maturity of these
      instruments. The fair value of the fixed-rate mortgage debt and unsecured notes
      as of December 31, 2006 approximated the book value of approximately $95.5
      million. The fair value of the mortgage debt was determined by discounting
      the
      future contractual interest and principal payments by a market
      rate.





Use
      of
      Estimates




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting periods. Actual results could differ from those
      estimates.




Net
      Loss per Share





Net
      loss
      per share is computed in accordance with SFAS No. 128, *Earnings
      per Share* ,
      by
      dividing the net loss by the weighted average number of shares of common stock
      outstanding. The Company does not have any options and warrants outstanding.
      As
      such, the numerator and the denominator used in computing both basic and diluted
      net loss per share allocable to common stockholders for each year presented
      are
      equal.





New
      Accounting Pronouncements




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      This
      Statement applies under other accounting pronouncements that require or permit
      fair value measurements. Accordingly, this Statement does not require any new
      fair value measurements. However, for some entities, the application of this
      Statement will change current practice. This Statement clarifies that market
      participant assumptions include assumptions about risk, for example, the risk
      inherent in a particular valuation technique used to measure fair value (such
      as
      a pricing model) and/or risk inherent in the inputs to the valuation technique.
      This Statement clarifies that market participant assumptions also include
      assumptions about the effect of a restriction on the sale or use of an asset.
      This Statement also clarifies that a fair value measurement for a liability
      reflects its nonperformance risk. This Statement is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      interim periods within those fiscal years. The Company is currently evaluating
      the impact that the adoption of SFAS No. 157, but does not expect the adoption
      of SFAS No. 157 will have a material effect on the Company’s consolidated
      financial statements.





61
 
 **PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**


In
      June
      2006, the FASB issued FIN No. 48, *Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
      109* .
      This
      Interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with FASB
      Statement No. 109, *Accounting
      for Income Taxes* .
      This
      Interpretation prescribes a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. This Interpretation also provides guidance
      on derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. This Interpretation is effective for fiscal
      years beginning after December 15, 2006. The Company does not expect the
      adoption of FIN No. 48 to have a material impact on the Company’s financial
      position or results of operations.





In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108 to address
      diversity in practice in quantifying financial statement misstatements and
      the
      potential under current practice for the build up of improper amounts on the
      balance sheet. SAB 108 provides guidance on the consideration of the effects
      of
      prior year misstatements in quantifying current year misstatements for the
      purpose of a materiality assessment. The Company does not believe that the
      adoption of SAB 108 will have any effect on the Company’s consolidated financial
      statements.




In
      September 2005, the Emerging Issues Task Force (“EITF”) issued Issue 04-05,
“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.” The EITF addresses whether rights held by the limited
      partner(s) preclude consolidation in circumstances in which the sole general
      partner would consolidate the limited partnership in accordance with U.S.
      generally accepted accounting principals. The assessment of limited partners’
rights and their impact on the presumption of control of the limited partnership
      by the sole general partner should be made when an investor becomes the sole
      general partner and should be reassessed if (i) there is a change to the terms
      or in the exercisability of the rights of the limited partners, (ii) the sole
      general partner increases or decreases its ownership of limited partnership
      interests, or (iii) there is an increase or decrease in the number of
      outstanding limited partnership interests. This issue is effective no later
      than
      for fiscal years beginning after December 15, 2005, and as of June 29, 2005
      for
      new or modified arrangements. The Company adopted this statement in the first
      quarter of 2006. Adoption of EITF 04-05 had no material impact on the Company’s
      financial position or results of operations.





**3.** ***Acquisitions***




*St
      Augustine Retail Outlet Mall*




On
      November 30, 2005, Prime Outlets Acquisition Company LLC (“Prime”), an affiliate
      of the Advisor, entered into a Purchase and Sale Agreement with St. Augustine
      Outlet World, Ltd, an unaffiliated third party, to purchase Belz Outlets at
      St.
      Augustine, Florida. On March 31, 2006, Prime assigned its interest in the
      Purchase and Sale Agreement to LVP St. Augustine Outlets, LLC (“LVP St.
      Augustine”), a single purpose, wholly owned subsidiary of the Operating
      Partnership, and LVP St. Augustine simultaneously completed the acquisition
      of
      the property. The total acquisition price, including acquisition-related
      transaction costs, was $26,921,450. In connection with the transaction, the
      Advisor received an acquisition fee equal to 2.75% of the purchase price, or
      $715,000.





Approximately
      $22.4 million of the total acquisition cost was funded by a mortgage loan from
      Wachovia Bank, National Association (“Wachovia”) and approximately $4.5 million
      was funded with offering proceeds from the sale of the Company’s common stock.
      Loan proceeds from Wachovia were also used to fund approximately $4.8 million
      of
      escrows for future leasing-related expenditures, real estate taxes, insurance
      and debt service.





62
 
 **PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**


*Southeastern
      Michigan Multi-Family Properties*




On
      April
      26, 2006, the Sponsor entered into a Purchase and Sale Agreement with Home
      Properties, L.P. and Home Properties WMF I, LLC, affiliates of Home Properties,
      Inc., a New York Stock Exchange listed real estate investment trust
      (collectively, “Sellers”), each an unaffiliated third party, to purchase 19
      multifamily apartment communities. On June 29, 2006, the Sponsor assigned the
      purchaser’s interest in the Purchase and Sale Agreement with respect to four of
      the apartment communities to each of four single purpose, wholly owned
      subsidiaries of LVP Michigan Multifamily Portfolio LLC (“LVP MMP”), and the LVP
      MMP subsidiaries simultaneously completed the acquisition of the four
      properties. The Operating Partnership holds a 99% membership interest in LVP
      MMP, while the Lightstone REIT holds a 1% membership interest in
      LVP MMP. The properties are located in Southeast Michigan and were valued
      by an independent third-party appraiser retained by Citigroup Global Markets
      Realty Corp. (“Citigroup”) at an aggregate value equal to $54.3
      million.





The
      total
      acquisition price, excluding acquisition-related transaction costs, was
      approximately $42.2 million. In connection with the transaction, the Advisor
      received an acquisition fee equal to 2.75% of the purchase price, or
      approximately $1.1 million. Other closing and financing related costs totaled
      approximately $400,000, and net pro ration adjustments for assumed liabilities,
      prepaid rents, real estate taxes and interest totaled $500,000.





Approximately
      $40.7 million of the total acquisition cost was funded by a mortgage loan from
      Citigroup, and approximately $4.6 million was funded with offering proceeds
      from
      the sale of the Company’s common stock. Loan proceeds from Citigroup were also
      used to fund approximately $1.1 million of escrows for capital improvements,
      real estate taxes, and insurance.





In-place
      rents, net of rent concessions, and average occupancy for the four properties
      at
      December 31, 2006 was as follows:


In
                  place rents, net
              
              $
              718,217Occupancy
                  percentage
              
              
              91.64
              %


*Oakview
      Plaza*





On
      December 21, 2006, the Company, through LVP Oakview Strip Center LLC, a wholly
      owned subsidiary of the Operating Partnership, acquired a retail shopping mall
      in Omaha, Nebraska from Oakview Plaza North, LLC (“Oakview”), Frank R. Krejci,
      Vera Jane Krejci, George W. Venteicher and Susan J. Venteicher (Oakview, Mr.
      and
      Mrs. Krejci and Mr. and Mrs. Venteicher, collectively, “Seller”), none of whom
      are affiliated with the Company.





Subject
      to Oakview’s development and leasing of an additional 2.1 acre parcel of land
      (the “Option Land”) located immediately adjacent to the property, the Operating
      Partnership will be required to subsequently purchase the Option Land on the
      commencement of rent under the lease for the Option Land. The contract price
      for
      the fully improved and leased Option Land will be determined by dividing the
      first full year of base rent payments by 9.5%. In the event that it receives
      notice that Oakview is not successful in negotiating the improvement and leasing
      of the Option Land, the Operating Partnership will have 30 days to purchase
      the
      unimproved Option Land from Oakview for a fixed contract price of $650,000.
      To
      date, the Company had not received such notice.





63
 
 **PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**


The
      acquisition price for the Property was $33.5 million, including an acquisition
      fee paid to the Advisor of $0.9 million and $47,000 in other acquisition-related
      transaction costs. Approximately $6.0 million of the acquisition cost was funded
      with offering proceeds from the sale of our common stock and the remainder
      was
      funded with a $27.5 million fixed rate loan from Wachovia secured by the
      property. Offering proceeds were also used to fund financing related costs
      ($.2
      million) and insurance and tax reserves ($.2 million). The Property was
      independently appraised at $38.0 million.





As
      of
      December 31, 2006, the approximate fixed future minimum rentals from the
      Company’s commercial real estate properties are as follows:


2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              Thereafter
              
              TotalSt
                  Augustine
              
              $
              2,050,393
              
              $
              1,613,773
              
              $
              1,168,043
              
              $
              513,052
              
              $
              200,298
              
              $
              34,358
              
              $
              5,579,917Oakview
                  Plaza
              
              
              2,408,318
              
              
              2,456,278
              
              
              2,345,791
              
              
              1,852,370
              
              
              1,519,062
              
              
              6,884,367
              
              
              17,466,186$
              4,458,711
              
              $
              4,070,051
              
              $
              3,513,834
              
              $
              2,365,422
              
              $
              1,719,360
              
              $
              6,918,725
              
              $
              23,046,103




The
      following unaudited pro forma combined condensed statements of operations set
      forth the consolidated results of operations for the twelve months ended
      December 31, 2006 and December 31, 2005, respectively, as if the above described
      acquisitions had occurred at January 1, 2005. The unaudited pro forma
      information does not purport to be indicative of the results that actually
      would
      have occurred if the acquisitions had been in effect for the twelve months
      ended
      December 31, 2006 and December 31, 2005, respectively, or for any future
      period.


Twelve
                  Months EndedDecember
                  31,2006
              
              2005Real
                  estate revenues
              
              $
              16,773,139
              
              $
              17,515,492Net
                  loss
              
              $
              (1,165,267
              )
              $
              (1,744,267
              )Basic
                  and diluted loss per share
              
              $
              (0.55
              )
              $
              (1.10
              )Basic
                  and diluted weighted average shares outstanding
              
              
              2,111,166
              
              
              1,583,000


**4.** ***Mortgages
      Payable*** ****




Mortgages
      payable, totaling approximately $95.5 million at December 31, 2006, consists
      of
      two secured loans maturing in 2016, and one secured loan maturing in 2017.
      The
      loans bear interest at a fixed annual rate of 6.09%, 5.96%, and 5.49%
      respectively. Monthly installments of interest only are required through the
      first 12, 60 and 60 months, respectively, and monthly installments of principal
      and interest are required throughout the remainder of their stated terms. At
      their maturity, approximately $23.4 million, $37.9 million, and $22.6 million
      respectively, will be due, assuming no prior principal prepayment. Each of
      the
      loans is secured by acquired real estate and is non-recourse to the Company.




The
      following table shows the mortgage debt maturing during the next five
      years:


2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              Thereafter
              
              TotalFixed
                  rate mortgages
              
              $
              244,904
              
              $
              344,388
              
              $
              365,957
              
              $
              388,876
              
              $
              661,414
              
              $
              93,469,461
              
              $
              95,475,000
  64
 **PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**




Lightstone
      Holdings, LLC (“Guarantor”), a company wholly owned by the Advisor, has
      guaranteed to the extent of a $27.2 million mortgage loan on the St. Augustine,
      Florida property, the payment of losses that the lender may sustain as a result
      of fraud, misappropriation, misuse of loan proceeds or other acts of misconduct
      by the Company and/or its principals or affiliates.  Such losses are
      recourse to the Guarantor under the guaranty regardless of whether Wachovia
      has attempted to procure payment from the Company or any other party. 
Further, in the event of the Company's bankruptcy, reorganization or insolvency,
      or the interference by the Company or its affiliates in any foreclosure
      proceedings or other remedy exercised by Wachovia, Guarantor has guaranteed
      the payment of any unpaid loan amounts.  The Company has agreed, to the
      maximum extent permitted by its Charter, to indemnify Guarantor for
      any liability that it incurs under this guaranty.





Pursuant
      to the Company’s loan agreements, escrows in the amount of $6.9 million were
      held in restricted escrow accounts at December 31, 2006. These escrows will
      be
      released in accordance with the loan agreements as payments of real estate
      taxes, insurance and capital improvement transactions, as required. Our mortgage
      debt also contains clauses providing for prepayment penalties.





**5.** ***Intangible
      Assets***





At
      December 31, 2006 the Company had intangible liabilities relating to
      above-market leases from property acquisitions of approximately
      $0.7 million and approximately $0.1 million of accumulated amortization of
      above-market leases, intangible assets related to leases in place at the time
      of
      acquisition of $3.2 million and accumulated amortization of in-place leases
      of
      $1.4 million, intangible assets related to leasing costs of $0.9 million and
      accumulated amortization of those leasing costs in the amount of $0.1 million,
      and intangible liabilities relating to below-market leases from property
      acquisitions of approximately $3.0 million and $1.0 million of accumulated
      amortization of below-market leases.





In
      accordance with SFAS No. 141, during the fourth quarter, based on additional
      information obtained subsequent to the close of the St. Augustine, Florida
      property, the Company adjusted the purchase price allocation for this property.




65


**PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**
  The
            following table presents the amortization of the acquired in-place lease
            intangibles, acquired above market lease costs and the below market lease
            costs
            for properties owned at December 31, 2006.


Amortization
                  of:
              
              2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              ThereafterAcquired
                  above market lease value
              
              $
              176,211
              
              $
              148,989
              
              $
              124,385
              
              $
              51,177
              
              $
              27,883
              
              $
              73,342Acquired
                  below market lease value
              
              
              (584,347
              )
              
              (495,622
              )
              
              (373,662
              )
              
              (198,891
              )
              
              (94,322
              )
              
              (264,219
              )Projected
                  future net rental income increase
              
              $
              (408,136
              )
              $
              (346,633
              )
              $
              (249,277
              )
              $
              (147,714
              )
              $
              (66,439
              )
              $
              (190,877
              )Acquired
                  in-place lease value
              
              $
              682,390
              
              $
              326,443
              
              $
              262,892
              
              $
              138,870
              
              $
              74,541
              
              $
              316,541


**6** ***.
      Distributions Payable***




On
      November 10, 2006, the Company’s Board of Directors declared a dividend for the
      three-month period ending December 31, 2006. The dividend was calculated based
      on stockholders of record each day during this period at a rate of $0.0019178
      per day. If paid each day for a 365-day period, the dividend represented a
      7.0
      percent annualized rate based on a share price of $10.00. The dividend was
      paid
      in full in January 2007 using a combination of cash ($350,039), and pursuant
      to
      the Company’s Distribution Reinvestment Program, shares of the Company’s stock
      at a discounted price of $9.50 per share ($251,247). 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.





***7.
      Deposit for Real Estate Purchase***




At
      December 31, 2006, the Company held $8.4 million as refundable deposits for
      two
      real estate transactions that subsequently closed in the first quarter. See
      subsequent event Note 12.





***8.
      Stockholder’s Equity***




***Preferred
      Shares***





Shares
      of
      preferred stock may be issued in the future in one or more series as authorized
      by the Lightstone REIT’s board of directors. Prior to the issuance of shares of
      any series, the board of directors is required by the Lightstone REIT’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 Lightstone REIT’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
      Lightstone REIT, 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 Lightstone REIT’s common stock. As of
      December 31, 2006 and 2005, the Lightstone REIT had no outstanding
      preferred shares.




66
 
 **PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**


***Common
      Shares***





All
      of
      the common stock being offered by the Lightstone REIT 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
      Lightstone REIT’s common stock will be entitled to receive distributions if
      authorized by the board of directors and to share ratably in the Lightstone
      REIT’s assets available for distribution to the stockholders in the event of a
      liquidation, dissolution or winding-up.




Each
      outstanding share of the Lightstone REIT’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.





Holders
      of the Lightstone REIT’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 Lightstone REIT’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 Lightstone REIT’s common stock have equal dividend,
      distribution, liquidation and other rights.




Under
      its
      charter, the Lightstone REIT 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 Lightstone REIT is
      the
      acquirer, however, do not require stockholder approval. The Lightstone REIT
      had
      4.3 million and 20,000 shares of common stock outstanding as of
      December 31, 2006 and 2005, respectively.





***Equity
      Compensation Plan***




The
      Lightstone REIT has adopted a stock option plan under which its independent
      directors are eligible to receive annual nondiscretionary awards of nonqualified
      stock options. The Lightstone REIT’s stock option plan is designed to enhance
      the Lightstone REIT’s profitability and value for the benefit of stockholders by
      enabling the Lightstone REIT 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
      Lightstone REIT’s stockholders.




The
      Lightstone REIT 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 Lightstone REIT’s capital structure or business, stock dividend, stock
      split, recapitalization, reorganization, merger, consolidation or sale of all
      or
      substantially all of its assets.




67
 
 **PART II.
            CONTINUED:**
 **ITEM
            8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
            CONTINUED:**
 
 **LIGHTSTONE
            VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
            SUBSIDIARIES**
 **Notes
            to Consolidated Financial Statements**
 **December
            31, 2006 and 2005 and**
 **For
            the Period from June 8, 2004 (date of inception) to December 31,
            2004**
 **(continued)**


The
      Lightstone REIT’s stock option plan provides for the automatic grant of a
      nonqualified stock option to each of the Lightstone REIT’s independent
      directors, without any further action by the board of directors or the
      stockholders, to purchase 3,000 shares of the Lightstone REIT’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 Lightstone REIT’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 Lightstone REIT’s current plan.




Notwithstanding
      any other provisions of the Lightstone REIT’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.





***Dividends***





The
      Board
      of Directors of the Lightstone REIT declared a dividend for each quarter in
      2006
      and for the quarter ending March 31, 2007. The dividends have been calculated
      based on stockholders of record each day during this three-month period at
      a
      rate of $0.0019178 per day, which, if paid each day for a 365-day period, would
      equal a 7.0% annualized rate based on a share price of $10.00. Total dividends
      declared for the year ended December 31, 2006 were $1.1 million. The dividend
      declared for the quarter ending March 31, 2007 will be paid in cash, in April
      2007, to stockholders of record as of March 30, 2007.





**9.** ***Related
      Party Transactions*** ****




The
      Lightstone REIT 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 Lightstone REIT’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
                Lightstone REIT’s common stock at an exercise price of $12.00 per
                share.






68


**PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**




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 Lightstone REIT
                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 Lightstone REIT’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 Lightstone REIT
                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%.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
                Lightstone REIT 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 Lightstone REIT 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 Lightstone REIT’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 Lightstone REIT qualifies as a REIT, the Advisor
                must reimburse the Lightstone REIT 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 Lightstone
                REIT.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 Lightstone REIT by independent
                parties.




69


**PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**




Lightstone
      SLP, LLC, an affiliate of our Sponsor, has and continues to purchase special
      general partner interests in the Operating Partnership. These special general
      partner interests, 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. Lightstone SLP LLC has not received any portion of regular
      distributions made by the Operating Partnership to date. 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 is eligible to 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 Lightstone REIT’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 interests 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 Lightstone REIT 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:




70


**PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**





**Liquidating
                Stage**
              **Distributions**
            
            **Amount
                of Distribution**7%
                Stockholder Return Threshold
            
            Once
                stockholders have received liquidation distributions, and a cumulative
                non-compounded 7% return per year 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.





**10** ***.
      Segment Information***





The
      Company operates in two business segments as of December 31, 2006: (i) retail
      real estate and (ii) residential real estate. The Company provides leasing,
      property and facilities management, acquisition, development, construction
      and
      tenant-related services for its portfolio. The Company’s revenues for the years
      ended December 31, 2006, and 2005 and for the period from June 8, 2004 (date
      of
      inception) to December 31, 2004, were exclusively derived from activities in
      the
      United States. No revenues from foreign countries were received or reported.
      The
      Company had no long-lived assets in foreign locations as of December 31, 2006
      and December 31, 2005. The accounting policies of the segments are the same
      as
      those described in Note 2: Significant Accounting Policies, excluding
      depreciation and amortization.





The
      Company evaluates performance based upon net operating income from the combined
      properties in each real estate segment.





71


**PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**




F or
      the
      period from June 8, 2004 (date of inception) to December 31, 2004, the Company
      operated as one segment and had no activity. Selected
      results of operations for the years ended December 31, 2006 and 2005, and
      selected asset information regarding the Company’s operating segments are as
      follows:





**Retail**
              
              **Residential**
              
              **Corporate**
              
              **Year
                  Ended**
                **December
                  31, 2006**Revenues:Rental
                  income
              
              $
              3,292,292
              
              $
              3,979,446
              
              $
              -
              
              $
              7,271,738Tenant
                  recovery income
              
              
              990,929
              
              
              -
              
              
              -
              
              
              990,9294,283,221
              
              
              3,979,446
              
              
              -
              
              
              8,262,667Expenses:Property
                  operating expenses
              
              
              1,666,335
              
              
              1,990,579
              
              
              -
              
              
              3,656,914Real
                  estate taxes
              
              
              400,968
              
              
              481,244
              
              
              -
              
              
              882,212General
                  and adminsitrative costs
              
              
              
              
              
              
              
              
              808,502
              
              
              808,502Depreciation
                  and amortization
              
              
              1,279,376
              
              
              1,395,443
              
              
              -
              
              
              2,674,819Operating
                  expenses
              
              
              3,346,679
              
              
              3,867,266
              
              
              808,502
              
              
              8,022,447Net
                  property operations
              
              
              936,542
              
              
              112,180
              
              
              (808,502
              )
              
              240,220Other
                  income
              
              
              129,595
              
              
              291,705
              
              
              389,577
              
              
              810,877Interest
                  expense
              
              
              (1,322,050
              )
              
              (1,265,477
              )
              
              -
              
              
              (2,587,527
              )Minority
                  interest
              
              
              -
              
              
              -
              
              
              86
              
              
              86Net
                  loss applicable to common shares
              
              $
              (255,913
              )
              $
              (861,592
              )
              $
              (418,839
              )
              $
              (1,536,344
              )**Balance
                  sheet financial data:**Real
                  estate assets, net
              
              $
              59,195,731
              
              $
              41,978,151
              
              $
              -
              
              $
              101,173,882Restricted
                  escrows
              
              
              5,167,687
              
              
              1,744,891
              
              
              -
              
              
              6,912,578Deposit
                  for real estate purchase
              
              
              -
              
              
              -
              
              
              8,435,000
              
              
              8,435,000Acquired
                  in-place lease intangibles, net
              
              
              1,553,340
              
              
              248,338
              
              
              -
              
              
              1,801,678Acquired
                  above market lease intangibles, net
              
              
              601,987
              
              
              -
              
              
              -
              
              
              601,987Deferred
                  leasing costs, net
              
              
              758,438
              
              
              -
              
              
              -
              
              
              758,438Other
                  assets
              
              
              113,426
              
              
              446,900
              
              
              11,660
              
              
              571,986Non-segmented
                  assets
              
              
              -
              
              
              -
              
              
              20,452,668
              
              
              20,452,668Total
                  Assets
              
              $
              67,390,609
              
              $
              44,418,280
              
              $
              28,899,328
              
              $
              140,708,217Mortgage
                  Payable
              
              $
              54,750,000
              
              $
              40,725,000
              
              $
              -
              
              $
              95,475,000


72


**PART II.
          CONTINUED:**
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**




**Retail**
              
              **Residential**
              
              **Corporate**
              
              **Year
                  Ended**
                **December
                  31, 2005**Revenues:Rental
                  income
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Tenant
                  recovery income
              
              
              -
              
              
              -
              
              
              -
              
              
              --
              
              
              -
              
              
              -
              
              
              -Expenses:Property
                  operating expenses
              
              
              -
              
              
              -
              
              
              -
              
              
              -Real
                  estate taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -General
                  and adminsitrative costs
              
              
              -
              
              
              -
              
              
              117,571
              
              
              117,571Depreciation
                  and amortization
              
              
              -
              
              
              -
              
              
              -
              
              
              -Operating
                  expenses
              
              
              -
              
              
              -
              
              
              117,571
              
              
              117,571Net
                  property operations
              
              
              -
              
              
              -
              
              
              (117,571
              )
              
              (117,571
              )Other
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -Interest
                  expense
              
              
              -
              
              
              -
              
              
              -
              
              
              -Minority
                  interest
              
              
              -
              
              
              -
              
              
              1,164
              
              
              1,164Net
                  loss applicable to common shares
              
              $
              -
              
              $
              -
              
              $
              (116,407
              )
              $
              (116,407
              )**Balance
                  sheet financial data:**Real
                  estate assets, net
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Non-segmented
                  assets
              
              
              -
              
              
              -
              
              
              430,996
              
              
              430,996Total
                  Assets
              
              $
              -
              
              $
              -
              
              $
              430,996
              
              $
              430,996




**11** ***.
      Quarterly Financial Data (Unaudited)***





The
      following table presents selected unaudited quarterly financial data for each
      quarter during the year ended December 31, 2006 and 2005:


2006Quarter
                  ended
                December
                  31,
              
              Quarter
                  ended
                September
                  30,
              
              Quarter
                  ended
                June
                  30,
              
              Quarter
                  ended
                March
                  31,Total
                  revenue
              
              $
              3,698,776
              
              $
              3,071,771
              
              $
              1,479,310
              
              $
              12,810Net
                  income (loss)
              
              
              (739,636
              )
              
              (822,606
              )
              
              116,060
              
              
              (90,162
              )Net
                  income (loss) per common share, basic and diluted
              
              $
              (0.22
              )
              $
              (0.46
              )
              $
              0.13
              
              $
              (0.37
              )
 2005Quarter
                  ended
                December
                  31,
              
              Quarter
                  ended
                September
                  30,
              
              Quarter
                  ended
                June
                  30,
              
              Quarter
                  ended
                March
                  31,Total
                  revenue
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Net
                  loss
              
              
              (116,407
              )
              
              -
              
              
              -
              
              
              -Net
                  loss per common share, basic and diluted
              
              $
              (5.82
              )
              $
              -
              
              $
              -
              
              $
              -




73


**PART II.
        CONTINUED:**
 **ITEM
        8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
        CONTINUED:**
 
 **LIGHTSTONE
        VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
        SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2006 and 2005 and**
 **For
        the Period from June 8, 2004 (date of inception) to December 31,
        2004**
 **(continued)**


**12.** ***Subsequent
      Events***





On
      January 4, 2007, the Company, through LVP 1407 Broadway LLC, a wholly owned
      subsidiary of the Operating Partnership, entered into a joint venture with
      an
      affiliate of its Sponsor. On the same date, an indirect, wholly owned subsidiary
      acquired a sub-leasehold interest in a ground lease to an office building
      located at 1407 Broadway, New York, New York (the “Sublease Interest”). The
      seller of the Sublease Interest, Gettinger Associates, L.P., is not an affiliate
      of the Company, its Sponsor or its subsidiaries. The property, a 42 story office
      building built in 1952, fronts on Broadway, 7th Avenue and 39th Street in
      midtown Manhattan. The property has approximately 915,000 leasable square feet,
      was 87.6% occupied at December 31, 2006, (approximately 300 tenants)
      and is currently leased by tenants generally engaged in the female apparel
      business. The ground lease, dated as of January 14, 1954, provides for multiple
      renewal rights, with the last renewal period expiring on December 31, 2048.
      The
      Sublease Interest runs concurrently with this ground lease.





The
      acquisition price for the Sublease Interest was $122 million, exclusive of
      acquisition-related costs incurred by the Joint Venture ($3.5 million), pro
      rated operating expenses paid at closing ($4.1 million), financing-related
      costs
      ($1.9 million) and construction, insurance and tax reserves ($1.0 million).
      The
      acquisition was funded through a combination of $26.5 million of capital and
      a
      $106.0 million advance on a $127.3 million variable rate mortgage loan funded
      by
      Lehman Brothers Holding, Inc. The loan is secured by the Sublease. Equity
      from the Company’s co-venturer totaled $13.5 million (representing a 51%
      ownership interest). The Company’s capital investment, funded with proceeds
      from its common stock offering, was $13.0 million (representing a 49%
      ownership interest). In addition, the Company paid $1.6 million to the
      Advisor as an acquisition fee and legal fees to its attorney of
      approximately $0.1 million. The Joint Venture plans to continue an
      ongoing renovation project at the property that consists of lobby, elevator
      and
      window redevelopment projects. Additional loan proceeds of up to $21.3 million
      are available to fund these improvements.




The
      Company will account for the investments in this unconsolidated joint venture
      under the equity method of accounting as the Company exercises significant
      influence, but does not control these entities. This $13.0 million investment
      will be recorded initially at cost and subsequently adjusted for cash
      contributions and distributions. Earnings for each investment are recognized
      in
      accordance with this investment agreement and where applicable, based upon
      an
      allocation of the investment’s net assets at book value as if the investment was
      hypothetically liquidated at the end of each reporting period. The acquisition
      fee will be charged to expense during the first quarter of 2007.





On
      February 1, 2007, the Company, through wholly owned subsidiaries of the
      Operating Partnership acquired 12 industrial and 2 office properties
      located in New Orleans, LA (5 industrial and 2 office properties), Baton
      Rouge, LA (3 industrial properties) and San Antonio, TX (4 industrial
      properties). As a group, the properties were 92% occupied at December 31, 2006,
      and represent approximately 1.0 million leasable square feet principally
      suitable for flexible industrial (54%), distribution (36%) and office (10%)
      uses. The properties were independently appraised at $70.7 million.




The
      acquisition price for the properties was $63.9 million, exclusive of
      approximately $1.9 million of closing costs, approximately $1.0 million of
      escrow funding for immediate repairs ($0.9 million) and insurance ($0.1
      million), and financing related costs of approximately $0.6 million. In
      connection with the transaction, the Advisor received an acquisition fee equal
      to 2.75% of the purchase price, or approximately $1.8 million. The acquisition
      was funded through a combination of $14.4 million in offering proceeds and
      approximately $53.0 million in loan proceeds from a fixed rate mortgage loan
      secured by the properties. The Company does not intend to make significant
      renovations or improvements to the properties. The Company believes the
      properties are adequately insured.




74
 
 **ITEM
          8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
          CONTINUED:**
 
 **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006 and 2005 and**
 **For
          the Period from June 8, 2004 (date of inception) to December 31,
          2004**
 **(continued)**


**Lightstone
        Value Plus REIT, Inc.**
 (A
        Maryland Corporation)
  **Schedule
          III**
 **Real
          Estate and Accumulated Depreciation**
 **December
          31, 2006**
 Initial
                      Cost  (A)
                  
                  
                  
                  Gross
                      amount at which
                    carried
                      at end of periodEncumbrance
                  
                  Land
                  
                  Buildings
                      and Improvements
                  
                  Costs
                      Capitalized Subsequent to Acquisition
                  
                  Land
                      and Improvements
                  
                  Buildings
                      and Improvements
                  
                  Total
                      (B)
                  
                  Accumulated
                      Depreciation (C)
                  
                  Date
                      Acquired
                  
                  Depreciable
                      Life (D)Belz
                      Factory OutletSt
                      Augustine, FL
                  
                  
                  -
                  
                  $
                  5,384,290
                  
                  $
                  22,374,795
                  
                  $
                  14,765
                  
                  $
                  5,384,290
                  
                  $
                  22,389,560
                  
                  $
                  27,773,850
                  
                  $
                  (722,057
                  )
                  
                  3/29/2006
                  
                  
                  (D
                  )Four
                      Residential CommunitiesSoutheatern,
                      Michigan
                  
                  
                  -
                  
                  
                  8,051,125
                  
                  
                  34,297,538
                  
                  
                  67,049
                  
                  
                  8,051,125
                  
                  
                  34,364,587
                  
                  
                  42,415,712
                  
                  
                  (437,560
                  )
                  
                  6/29/2006
                  
                  
                  (D
                  )Oakview
                      PlazaOmaha,
                      Nebraska
                  
                  
                  -
                  
                  
                  6,705,942
                  
                  
                  25,462,968
                  
                  
                  
                  
                  
                  6,705,942
                  
                  
                  25,462,968
                  
                  
                  32,168,910
                  
                  
                  (24,973
                  )
                  
                  12/21/2006
                  
                  
                  (D
                  )Total
                  
                  $
                  -
                  
                  $
                  20,141,357
                  
                  $
                  82,135,301
                  
                  $
                  81,814
                  
                  $
                  20,141,357
                  
                  $
                  82,217,115
                  
                  $
                  102,358,472
                  
                  $
                  (1,184,590
                  )
  Notes:
  (A)
              The
              initial cost to the Company represents the original purchase price
              of the
              property, including amounts incurred subsequent to acquisition which
              were
              contemplated at the time the property was acquired.
  (B)
                Reconciliation of total real estate owned
 2006Balance
                          at December 31, 2005
                      
                      $
                      -Purchases
                          of investment properties
                      
                      
                      104,120,077Acquired
                          in-place lease intangibles
                      
                      
                      (3,167,190
                      )Acquired
                          in-place lease intangibles (commissions)
                      
                      
                      (881,668
                      )Acquired
                          above market lease intangibles
                      
                      
                      (677,245
                      )Acquired
                          below market lease intangibles
                      
                      
                      2,964,498Balance
                          at December 31, 2006
                      
                      $
                      102,358,472
  (C)
                  Reconciliation of accumulated depreciation:
  Balance
                          at January 1, 2006
                      
                      $
                      -Depreciation
                          expense
                      
                      
                      1,184,590Balance
                          at December 31, 2006
                      
                      $
                      1,184,590(Amortization
                          of intangibles is not included for the purposes of this
                          disclosure)
  (D)
                  Depreciation is computed based upon the following estimated
                  lives:
  Buildings
                          and improvements
                      
                      
                      15-39
                          yearsTenant
                          improvements and equipment
                      
                      
                      5-10
                          years


75


**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
      2006.





**ITEM
      9A.  CONTROLS AND PROCEDURES**


**Evaluation
      of Disclosure Controls and Procedures**





The
      Lightstone REIT has established disclosure controls and procedures to ensure
      that material information relating to the Lightstone REIT, including its
      consolidated subsidiaries, is made known to the officers who certify the
      Lightstone REIT’s financial reports and to the members of senior management and
      the Board of Directors. Since the Company is considered a non-accelerated filer,
      we will not have to file Section 404 reports under the Sarbanes-Oxley Act of
      2002 until its Form 10-K filing for 2007.





Based
      on
      management’s evaluation as of December 31, 2006, the chief executive officer and
      chief financial officer of the Lightstone REIT have concluded that the
      Lightstone REIT’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 Lightstone REIT
      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 Lightstone REIT’s internal control over financial
      reporting during the fourth quarter ended December 31, 2006 that have materially
      affected, or are reasonably likely to materially affect, the Lightstone REIT’s
      internal control over financial reporting.





**ITEM
      9B. OTHER INFORMATION:**


None.




76




**PART
      III.**


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





**Directors**




The
      following table presents certain information as of March 1, 2007 concerning
      each
      of our directors serving in such capacity:





**Name**
            
            **Age**
            
            **Principal
                Occupation and**
              **Positions
                Held**
            
            **Year
                Term of**
              **Office
                Will**
              **Expire**
            
            **Served
                as a**
              **Director**
              **Since**David
                Lichtenstein
            
            46
            
            Chief
                Executive Officer, President and Chairman of the Board of
                Directors
            
            2007
            
            2004Edwin
                J. Glickman
            
            74
            
            Director
            
            2007
            
            2005George
                R. Whittemore
            
            57
            
            Director
            
            2007
            
            2006Shawn
                R. Tominus
            
            47
            
            Director
            
            2007
            
            2006Bruno
                de Vinck
            
            61
            
            Chief
                Operating Officer, Senior Vice President, Secretary and
                Director
            
            2007
            
            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 27 states, the District of Columbia
      and Puerto Rico. Mr. Lichtenstein is a member of the International Council
      of
      Shopping Centers and NAREIT. Mr. Lichtenstein also serves as the Chairman of
      the
      board of trustees 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.




EDWIN
      J.
      GLICKMAN is one of our independent directors and the Chairman of our audit
      committee. 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. Mr. Glickman
      was
      previously a trustee of publicly traded RPS Realty Trust from October 1980
      through May 1996, and Atlantic Realty Trust from May 1996 to March 2006. Mr.
      Glickman graduated from Dartmouth College.





GEORGE
      R.
      WHITTEMORE is one of our independent directors. Mr. Whittemore also serves
      as
      Audit Committee Chairman of Prime Group Realty Trust, as a Director of Village
      Bank & Trust in Richmond, Virginia and as a Director of Supertel
      Hospitality, Inc. in Norfolk, Nebraska, all publicly traded companies. Mr.
      Whittemore previously served as President and Chief Executive Officer of
      Supertel Hospitality Trust, Inc. from November 2001 until August 2004 and as
      Senior Vice President and Director of both Anderson & Strudwick,
      Incorporated, a brokerage firm based in Richmond, Virginia, and Anderson &
Strudwick Investment Corporation, from October1996 until October 2001. Mr.
      Whittemore has also served as a Director, President and Managing Officer of
      Pioneer Federal Savings Bank and its parent, Pioneer Financial Corporation,
      from
      September 1982 until August 1994, and as President of Mills Value Adviser,
      Inc.,
      a registered investment advisor. Mr. Whittemore is a graduate of the University
      of Richmond.





SHAWN
      R.
      TOMINUS is one of our independent directors. Mr. Tominus is the founder and
      President of Metro Management, a real estate investment and management company
      founded in 1994 which specializes in the acquisition, financing, construction
      and redevelopment of residential, commercial and industrial properties. He
      also
      serves as a member of the audit committee of Prime Group Realty Trust, a
      publicly traded REIT located in Chicago. Mr. Tominus has over 25 years
      experience in real estate and serves as a national consultant focusing primarily
      on market and feasibility analysis. Prior to his time at Metro Management,
      Mr.
      Tominus held the position of Senior Vice President at Kamson Corporation, where
      he managed a portfolio of over 5,000 residential units as well as commercial
      and
      industrial properties.





77


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. Mr. de Vinck
      is
      a Senior Vice President with the Lightstone Group, and has been employed by
      Lightstone since 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, 2007 concerning
      each
      of our executive officers serving in such capacities:




**Name**
            
            **Age**
            
            **Principal
                Occupation and Positions Held**David
                Lichtenstein
            
            46
            
            Chief
                Executive Officer, President and Chairman of the Board of
                DirectorsBruno
                de Vinck
            
            61
            
            Chief
                Operating Officer, Senior Vice President, Secretary and
                DirectorMichael
                M. Schurer
            
            45
            
            Chief
                Financial Officer and TreasurerJoseph
                Teichman
            
            33
            
            General
                CounselStephen
                Hamrick
            
            54
            
            Vice
                President, Investor Relations




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 27 states, the District of Columbia
      and Puerto Rico. Mr. Lichtenstein is a member of the International Council
      of
      Shopping Centers and NAREIT. Mr. Lichtenstein also serves as the Chairman of
      the
      board of trustees 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, and Prime Group Realty Trust, a publicly registered REIT. Mr. de Vinck
      has
      also served as Senior Vice President with the Lightstone Group since 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.





78


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, and the Chief
      Financial Officer of our Advisor and Sponsor. Prior to joining us 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 Lightstone REIT.
      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.





JOSEPH
      E.
      TEICHMAN is our General Counsel and also serves as General Counsel of our
      Advisor and Sponsor. Prior to joining us in January 2007, Mr. Teichman had
      been
      an Associate with Paul, Weiss, Rifkind, Wharton & Garrison LLP in New York,
      NY from September 2001 to January 2007. Mr. Teichman was admitted to the Bar
      in
      the State of New York after having earned his J.D. from the University of
      Pennsylvania Law School in May 2001. Mr. Teichman earned a B.A. in Talmudic
      Law
      from Beth Medrash Govoha, Lakewood, NJ in April 1997.





STEPHEN
      H. HAMRICK is our Vice President of Investor Relations and the President &
CEO of Lightstone Securities. Prior to joining us in July of 2006, Mr. Hamrick
      served five years as President of Carey Financial Corporation and Managing
      Director of W.P. Carey & Co. Mr. Hamrick is a member of the Committee on
      Securities for the American Stock Exchange and The Board of Trustees of The
      Saratoga Group of Funds. In the 1990s, Mr. Hamrick developed an electronic
      trading business utilized by the institutional customers of Cantor Fitzgerald,
      including brokerage firms and banks, to trade privately held securities; spent
      two years as CEO of a full-service, investment brokerage business at Wall Street
      Investor Services, where he executed a turnaround strategy and the ultimate
      sale
      of that business; and served as Chairman of Duroplas Corporation, a development
      stage company building on proprietary technology that enables the production
      of
      thermoplastic compounds. From 1988 until 1994, Mr. Hamrick headed up Private
      Investments at PaineWebber Incorporated and was a member of the firm’s
      Management Council. From 1975 until joining PaineWebber, he was associated
      with
      E.F. Hutton & Company, holding positions ranging from Account Executive to
      National Director of Private Placements. Mr. Hamrick has served on the Listings
      Panel for NASDAQ, as Chairman of the Securities Industry Association’s Direct
      Investment Committee and as Chairman of the Investment Program Association.
      He
      is a Certified Financial Planner and was graduated with degrees in English
      and
      Economics from Duke University.





**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 years ended December 31,
      2006
      and 2005.





**Information
      Regarding Audit Committee**




Our
      Board
      established an audit committee in April 2005. The charter of audit committee
      is
      available at www.lightstonereit.com or in
      print to any shareholder who requests it c/o Lightstone Value Plus REIT, 326
      Third Street, Lakewood, NJ 08701. Our audit committee consists of Messrs. Edwin
      J. Glickman, George R. Whittemore and Shawn Tominus, each of whom is
“independent” within the meaning of the NYSE listing standards. The Board
      determined that Messrs. Glickman and Whittemore are qualified as audit committee
      financial experts as defined in Item 401 (h) of Regulation S-K. For more
      information regarding the relevant professional experience of Messrs. Glickman,
      Whittemore and Tominus, see “Directors”.




79


**ITEM
      11.  EXECUTIVE COMPENSATION**





**Compensation
      of Executive Officers**





We
      currently have no employees. Our Advisor performs our day-to-day management
      functions. 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**





**Executive
      Officers:**




The
      following table presents certain information as of March 1, 2007 concerning
      each
      of our directors and executive officers serving in such capacities:




**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
              %Edwin
                  J. Glickman
              
              
              -
              
              
              -George
                  R. Whittemore
              
              
              -
              
              
              -Shawn
                  Tominus
              
              
              -
              
              
              -Bruno
                  de Vinck
              
              
              -
              
              
              -Michael
                  M. Schurer
              
              
              -
              
              
              -Joseph
                  Teichman
              
              
              -
              
              
              -Stephen
                  Hamrick
              
              
              -
              
              
              -Our directors
                  and executive officers as a group (8 persons)
              
              
              20,000
              
              
              100
              %


**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.




80


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, 2006:




**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





**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. Our 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 our 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 our 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. Total management fees paid for the year ended
      December 31, 2006 totaled approximately $0.3 million.





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.




81


The
      Dealer Manager expects to reallow 100% of commissions earned for those
      transactions that involve participating broker-dealers. We also pay to our
      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. Our 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,
      our 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 Lightstone
      REIT's common stock at an exercise price of $12.00 per share. Total fees paid
      to
      the dealer manager in 2006 were $3.3 million.





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. 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%. 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. Total acquisition and asset
      management fees paid for the year ended December 31, 2006 were approximately
      $2.8 million and $0.3 million, respectively.




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 December 31, 2006, Lightstone SLP, LLC had contributed $4.3 million
      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.





82


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




Amper,
      Politziner & Mattia audited our financial statements for the year ended
      December 31, 2006 and 2005, and for the period from June 8, 2004 (date of
      inception) to December 31, 2004. Amper, Politziner & Mattia report directly
      to our audit committee.




***Principal
      Accounting Firm Fees***




The
      following table presents the aggregate fees billed to the Lightstone REIT for
      the year ended December 31, 2006 and 2005 by the Lightstone REIT’s
      principal accounting firm of Amper, Politziner & Mattia:


**2006**
              
              **2005**Audit
                  Fees (a)
              
              $
              125,000
              
              $
              68,500Audit-Related
                  Fees (b)
              
              
              41,500
              
              
              -Tax
                  Fees (c)
              
              
              -
              
              
              -All
                  Other Fees (d)
              
              
              -
              
              
              -Total
                  Fees
              
              $
              166,500
              
              $
              68,500




a)
            Fees
                for audit services billed in 2005 consisted of the audit of the Lightstone
                REIT’s annual financial statements, and reviews of the Lightstone REIT’s
                quarterly financial statements.





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





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





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





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 Lightstone REIT 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.




83


**PART
      III, CONTINUED:**


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





**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, 2006.*




*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, 2006.*




***Audit
      Committee***


George
      R.
      Whittemore ****


Edwin
      J.
      Glickman


Shawn
      R.
      Tominus





84


**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, 2006





EXHIBIT
      INDEX





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




EXHIBIT
                NO.
            
            DESCRIPTION3.1*
            
            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.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
                Lichtenstein10.7*
            
            Purchase
                and Sale Agreement between St. Augustine Outlet World, Ltd. and Prime
                Outlets Acquisition Company LLC10.8*
            
            Assignment
                and Assumption of Purchase and Sale Agreement by and between Prime
                Outlets
                Acquisition Company LLC and LVP St. Augustine Outlets
                LLC10.9*
            
            Note
                and Mortgage Modification Agreement Evidencing Renewal Promissory
                Note
                Including Future Advance and Amended and Restated Mortgage, Security
                Agreement and Fixture Filing by LVP St. Augustine Outlets LLC in
                favor of
                Wachovia Bank, National Association10.10*
            
            Renewal
                Promissory Note Including Future Advance by LVP St. Augustine Outlets
                LLC
                to the order of Wachovia Bank, National Association10.11*
            
            Guaranty
                by Lightstone Holdings, LLC for the benefit of Wachovia Bank, National
                Association10.12*
            
            Purchase
                and Sale Agreement among Home Properties, L.P., Home Properties WMF
                I, LLC
                and The Lightstone Group, LLC10.13*
            
            First
                Amendment to Purchase and Sale Agreement among Home Properties, L.P.,
                Home
                Properties WMF I, LLC and The Lightstone Group, LLC10.14*
            
            Second
                Amendment to Purchase and Sale Agreement among Home Properties, L.P.,
                Home
                Properties WMF I, LLC and The Lightstone Group, LLC10.15*
            
            Contribution
                Agreement among Scotsdale Borrower, LLC, Carriage Park MI LLC, LLC,
                Macomb
                Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets Realty
                Corp.10.16*
            
            Assignment
                and Assumption of Agreement for Purchase and Sale of Interests between
                The
                Lightstone Group, LLC and LVP Michigan Multifamily Portfolio
                LLC10.17*
            
            Loan
                and Security Agreement among Scotsdale MI LLC, Carriage Park MI LLC,
                Macomb Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets
                Realty Corp.10.18*
            
            Promissory
                Note by Scotsdale MI LLC, Carriage Park MI LLC, Macomb Manor MI LLC
                and
                Carriage Hill MI LLC in favor of Citigroup Global Markets Realty
                Corp.10.19*
            
            Mortgage
                by Scotsdale MI LLC in favor of Citigroup Global Markets Realty
                Corp.10.20*
            
            Mortgage
                by Carriage Park MI LLC in favor of Citigroup Global Markets Realty
                Corp.10.21*
            
            Mortgage
                by Macomb Manor MI LLC in favor of Citigroup Global Markets Realty
                Corp.10.22*
            
            Mortgage
                by Carriage Hill MI LLC in favor of Citigroup Global Markets Realty
                Corp.10.23*
            
            Environmental
                Indemnity Agreement among Scotsdale MI LLC, Carriage Park MI LLC,
                Macomb
                Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets Realty
                Corp.10.24*
            
            Exceptions
                to Non-Recourse Guaranty by Lightstone Value Plus Real Estate Investment
                Trust, Inc. and Lightstone Value Plus REIT LP for the benefit of
                Citigroup
                Global Markets Realty Corp.10.25*
            
            Conditional
                Assignment of Management Agreement among Scotsdale MI LLC, Carriage
                Park
                MI LLC, Macomb Manor MI LLC, Carriage Hill MI LLC and Citigroup Global
                Markets Realty Corp.




85




EXHIBIT
                NO.
            
            DESCRIPTION10.26**
            
            Purchase
                and Sale Agreement among Oakview Plaza North, LLC, the other sellers
                identified therein and Lightstone Value Plus REIT LP10.27**
            
            First
                Amendment to Purchase and Sale Agreement among Oakview Plaza North,
                LLC,
                the other sellers identified therein and Lightstone Value Plus REIT
                LP10.28**
            
            Second
                Amendment to Purchase and Sale Agreement among Oakview Plaza North,
                LLC,
                the other sellers identified therein and Lightstone Value Plus REIT
                LP10.29***
            
            Promissory
                Note by LVP Oakview Strip Center LLC in favor of Wachovia Bank, National
                Association10.30***
            
            Guaranty
                by Lightstone Value Plus Real Estate Investment Trust, Inc. in favor
                of
                Wachovia Bank, National Association10.31***
            
            Assignment
                of Leases and Rents and Security Deposits by LVP Oakview Strip Center
                LLC
                in favor of Wachovia Bank, National Association10.32***
            
            Deed
                of Trust, Security Agreement, Assignment of Rents and Fixture Filing
                by
                LVP Oakview Strip Center LLC in favor of Wachovia Bank, National
                Association10.33***
            
            Consent
                and Agreement of Beacon Property Management, LLC10.34+
            
            Assignment
                and Assumption of Seller’s Interest in Operating Lease between Gettinger
                Associates, L.P. and 1407 Broadway Real Estate LLC10.35+
            
            Participation
                Agreement between Gettinger Associates, L.P. and 1407 Broadway Real
                Estate
                LLC10.36+
            
            Property
                Management Agreement between 1407 Broadway Real Estate LLC and Trebor
                Management Corp.10.37+
            
            Leasehold
                Mortgage, Assignment of Leases and Rents, Security Agreement and
                Fixture
                Financing Statement by 1407 Broadway Real Estate LLC in favor of
                Lehman
                Brothers Holdings Inc.10.38+
            
            Promissory
                Note by 1407 Broadway Real Estate LLC in favor of Lehman Brothers
                Holdings
                Inc.10.39+
            
            Guaranty
                of Recourse Obligations by Lightstone Holdings LLC in favor of Lehman
                Brothers Holdings Inc.10.40+
            
            Net
                Profits Agreement between 1407 Broadway Real Estate LLC in favor
                and
                Lehman Brothers Holdings Inc.10.41++
            
            Agreement
                of Purchase and Sale10.42++
            
            First
                Amendment to Agreement of Purchase and Sale10.43+++
            
            Assignment
                and Assumption of Agreement of Purchase and Sale10.44+++
            
            Mortgage
                and Security Agreement by LVP Gulf Coast Industrial Portfolio LLC
                in favor
                of Wachovia Bank, National Association10.45+++
            
            Promissory
                Note by LVP Gulf Coast Industrial Portfolio LLC and the other borrowers
                identified therein in favor of Wachovia Bank, National
                Association10.46
            
            Form of Limited
              Liability Company Agreement of 1407 Broadway Mezz II LLC21.1
            
            Subsidiaries
              of the Registrant31.1
            
            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 Rule 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
              the Sarbanes-Oxley Act of 200232.2
            
            Certification
              Pursuant
              to Rule 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
              the Sarbanes-Oxley Act of 200299*
            
            Letter
                from Lightstone Securities to
                Subscribers





*
            Incorporated
                by reference from Lightstone Value Plus Real Estate Investment Trust,
                Inc.’s Registration Statement on Form S-11 (File No.
                333-117367)**
            Incorporated
                by reference from Lightstone Value Plus Real Estate Investment Trust,
                Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange
                Commission on November 6, 2006***
            Incorporated
                by reference from Lightstone Value Plus Real Estate Investment Trust,
                Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange
                Commission on December 27, 2006+
            Incorporated
                by reference from Lightstone Value Plus Real Estate Investment Trust,
                Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange
                Commission on January 10, 2007++
            Incorporated
                by reference from Lightstone Value Plus Real Estate Investment Trust,
                Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange
                Commission on January 18, 2007+++
            Incorporated
                by reference from Lightstone Value Plus Real Estate Investment Trust,
                Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange
                Commission on February 7, 2007




86





**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
                21, 2007
            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
                21, 2007/s/
                Michael M. Schurer
              **Michael
                M. Schurer**
            Chief
                Financial Officer and Treasurer
            March
                  21, 2007/s/
                Bruno de Vinck
              **Bruno
                de Vinck**
            Director
            March
                  21, 2007/s/
                Shawn R. Tominus
              **Shawn
                R. Tominus**
            Director
            March
                  21, 2007/s/
                Edwin J. Glickman
              **Edwin
                J. Glickman**
            Director
            March
                  21, 2007/s/
                George R. Whittemore
              **George
                R. Whittemore**
            Director
            March
                  21, 2007




87