**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, 2007**




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, 2007, the aggregate market value of the common shares held by
      non-affiliates of the registrant was $101,553,000. 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 14, 2008, there were 16.6 million 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
            
            3Item
                1B.
            Unresolved
                Staff Comments
            
            8Item
                2.
            Properties
            
            34Item
                3.
            Legal
                Proceedings
            
            34Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            36**PART II**Item 5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
                Purchases of Equity Securities
            
            36Item 6.
            Selected
                Financial Data
            
            38Item 7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            39Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            56Item
                8.
            Financial
                Statements and Supplementary Data
            
            58Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            95Item
                9A.
            Controls
                and Procedures
            
            96Item
                9B.
            Other
                Information
            
            97**PART
                III**Item 10.
            Directors
                and Executive Officers of the Registrant
            
            97Item
                11.
            Executive
                Compensation
            
            100Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management
            
            101Item
                13.
            Certain
                Relationships and Related Transactions
            
            102Item
                14.
            Principal
                Accounting Fees and Services
            
            104**PART
                IV**Item 15.
            Exhibits
                and Financial Statement Schedules
            
            106Signatures
            
            109




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 portfolios and
      individual properties, with its commercial holdings expected to consist of
      retail (primarily multi-tenanted shopping centers), lodging (primarily extended
      stay hotels), industrial and office properties primarily of multi-tenanted
      shopping centers, industrial and office properties, and its residential
      properties expected to consist of “Class B” multi-family complexes. Building
      classifications in most markets refer to Class “A”, “B”, “C” and sometimes “D”
properties. Class “A”, “AA” and “AAA” properties are typically newer buildings
      with superior construction and finish in excellent locations with easy access
      are attractive to creditworthy tenants and offer valuable amenities such as
      on-site management or covered parking. These buildings command the highest
      rental rates in their market. As the classification of a building decreases
      (e.g., Class “A” to Class “B”), one building attribute or another becomes less
      desirable.





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 22,000 residential units as well as office, industrial and
      retail properties totaling in excess of 25 million square feet of space in
      27
      states, the District of Columbia and Puerto Rico, and over 700 extended stay
      hotels. 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 and 2007. 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 14, 2008, cumulative gross offering proceeds of approximately $161.3
      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, 2007, the Lightstone
      REIT offset proceeds of approximately $13.0 million from the sale of special
      general partnership interests against approximately $13.0 million of
      Advisor cash advances used for offering costs. Through March 14, 2008, the
      Lightstone REIT offset proceeds of approximately $16.1 million from the sale
      of
      special general partnership interests against approximately $16.1 million
      of Advisor cash advances used for offering costs, which represented 10% of
      gross
      offering proceeds during the same period.





Our
      Advisor has not allocated any organizational costs to the Lightstone REIT as
      of
      December 31, 2007. 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. Our
      commercial holdings will consist of retail (primarily multi-tenanted shopping
      centers), lodging (primarily extended stay hotels), industrial and office
      properties. All such properties may be acquired and operated by the Lightstone
      REIT alone or jointly with another party. The Lightstone REIT has completed
      nine
      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; a portfolio of 12
      industrial and two office buildings in Louisiana and Texas, on February 1,
      2007,
      a 6.0 acre land parcel in Lake Jackson, Texas for immediate development of
      a
      61,287 square foot power center, two hotels in Houston, Texas, five multi family
      apartment communities, one in Tampa, Florida, two in Greensboro, North Carolina
      and two in Charlotte, North Carolina, and an industrial building in Sarasota,
      Florida. 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 residential and commercial properties principally, substantially
      all
      of which will be located in the continental United States. Our acquisitions
      may
      include both portfolios and individual properties. We expect that our commercial
      holdings will consist of retail (primarily multi-tenanted shopping centers),
      lodging (primarily extended stay hotels), industrial and office properties
      and
      that our residential properties will be principally comprised of ‘‘Class B’’
multi-family complexes.





We
      expect
      that we will acquire the following types of real estate interests:




·
            Fee
                interests in market-rate, middle market multifamily properties at
                a
                discount to replacement cost located either in emerging markets or
                near
                major metropolitan areas. We will attempt to identify those sub-markets
                with job growth opportunities and demand demographics which support
                potential long-term value appreciation for multifamily
                properties.


·
            Fee
                interests in well-located, multi-tenanted, community, power and lifestyle
                shopping centers and malls located in highly trafficked retail corridors,
                in selected high-barrier to entry markets and submarkets. We will
                attempt
                to identify those sub-markets with constraints on the amount of additional
                property supply will make future competition less
                likely.


·
            Fee
                interests in improved, multi-tenanted, industrial properties located
                near
                major transportation arteries and distribution corridors with limited
                management responsibilities.


·
            Fee
                interests in improved, multi-tenanted, office properties located
                near
                major transportation arteries in urban and suburban
                areas.


·
            Fee
                interests in lodging properties located near major transportation
                arteries
                in urban and suburban areas.




We
      expect
      that all of the properties will be owned by subsidiary limited partnerships
      or
      limited liability companies. These subsidiaries will be single-purpose entities
      that we create to own a single property, and each will have no assets other
      than
      the property it owns. These entities represent a useful means of shielding
      our
      operating partnership from liability under state laws and will make the
      underlying properties easier to transfer. However, tax law disregards
      single-member LLCs and so it will be as if the operating partnership owns the
      underlying properties for tax purposes. Use of single-purpose entities in this
      manner is customary for REITs. Our independent directors are not required to
      approve all transactions involving the creation of subsidiary limited liability
      companies and limited partnerships that we intend to use for investment in
      properties on our behalf. These subsidiary arrangements are intended to ensure
      that no environmental or other liabilities associated with any particular
      property can be attributed against other properties that the operating
      partnership or we will own. The limited liability aspect of a subsidiary’s form
      will shield parent and affiliated (but not subsidiary) companies, including
      the
      operating partnership and us, from liability assessed against it. No additional
      fees will be imposed upon the REIT by the subsidiary companies’ managers and
      these subsidiaries will notaffect our stockholders’ voting rights.





We
      do not
      intend to invest in single family residential properties; leisure home sites;
      farms; ranches; timberlands; unimproved properties not intended to be developed;
      or mining properties.




5


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.




**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 $237.6 million in outstanding long-term
      obligations as of December 31, 2007. In addition, the Lightstone REIT had $5.8
      million outstanding in notes payable.





**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
      2007, 2006 and for the quarter ending March 31, 2008. 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, 2007 and 2006 were
      $7.1
      million and $1.1 million, respectively. The dividend declared for the quarter
      ending March 31, 2008 will be paid in cash, in April 2008, to stockholders
      of
      record as of March 31, 2008.




**Tax
      Status**





We
      elected and qualified 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. The Company has assessed that it
      qualifies as a REIT in 2007.




6




**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.




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.




7




**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.




**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.





***Our
      dealer manager has limited experience in public offerings.*** This
      is
      the first offering for our dealer manager, Lightstone Securities, LLC, such
      as
      this. This lack of experience may affect the way in which Lightstone Securities
      conducts the offering. However, the President of our dealer manager has 30
      years
      of experience in the financial services business, including extensive experience
      in national sales and marketing.





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




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




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




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




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




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




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




8




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
      price of our common stock is subjective and may not bear any relationship to
      what a stockholder could receive if it was sold.*** Our
      board
      of directors arbitrarily determined the offering price of the common stock
      and
      such price bears no relationship to any established criteria for valuing issued
      or outstanding shares. It determined the offering price of our shares of common
      stock based primarily on the range of offering prices of other REITs that do
      not
      have a public trading market. In addition, our board of directors set the
      offering price of our shares at $10, a round number, in order to facilitate
      calculations relating to the offering price of our shares. However, the offering
      price of our shares of common stock may not reflect the price at which the
      shares may trade if they were listed on an exchange or actively traded by
      brokers, nor of the proceeds that a stockholder may receive if we were
      liquidated or dissolved.





***Our
      common stock is not currently listed on an exchange or trading market and are
      illiquid.*** There is
      currently no public trading market for the shares. Following this offering,
      our
      common stock will not be listed on a stock exchange. Accordingly, we do not
      expect a public trading market for our shares to develop. We may never list
      the
      shares for trading on a national stock exchange or include the shares for
      quotation on a national market system. The absence of an active public market
      for our shares could impair your ability to sell our stock at a profit or at
      all. Therefore, our shares should be purchased as a long term investment
      only.




9


***Your
      percentage of ownership may become diluted if we issue new shares of
      stock.*** Stockholders have no rights to buy additional shares of stock in the event
      we
      issue new shares of stock. We may issue common stock, convertible debt or
      preferred stock pursuant to a subsequent public offering or a private placement,
      upon exercise of options, or to sellers of properties we directly or indirectly
      acquire instead of, or in addition to, cash consideration. We may also issue
      common stock upon the exercise of the warrants issued and to be issued to
      participating broker-dealers. Investors purchasing common stock in this offering
      who do not participate in any future stock issues will experience dilution
      in
      the percentage of the issued and outstanding stock they own.





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





**Conflicts
      of Interest**




The
      “Conflicts of Interest” section discusses in more detail the more significant of
      these potential conflicts of interest, as well as the procedures that have
      been
      established to resolve a number of these potential conflicts.




***There
      are conflicts of interest between our dealer manager, advisor, property managers
      and their affiliates and us.*** David
      Lichtenstein, our sponsor, is the founder of The Lightstone Group, LLC which
      he
      wholly owns and does business in his individual capacity under that name.
      Through The Lightstone Group, Mr. Lichtenstein controls and indirectly owns
      our
      advisor, our property managers, our operating partnership, 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.




***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 our property managers 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 the sponsor and its affiliates to
      manage and operate our business. The sponsor is not restricted from acquiring,
      developing, operating, managing, leasing or selling real estate through entities
      other than us and will continue to be actively involved in operations and
      activities other than our operations and activities. The sponsor currently
      controls and/or operates other entities that own properties in many of the
      markets in which we may seek to invest. The sponsor spends a material amount
      of
      time managing these properties and other assets unrelated to our business.
      Our
      business may suffer as a result because we lack the ability to manage it without
      the time and attention of our sponsor’s employees. We encourage you to read the
“Conflicts of Interest” section of this prospectus for a further discussion of
      these topics.




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




10




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




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




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




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




***Property
      management services are being provided by an affiliated party.*** Our
      property managers are 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 one of our property managers because the property manager may lose
      fees associated with the management of the property. Specifically, because
      the
      property managers will receive significant fees for managing our properties,
      our
      advisor may face a conflict of interest when determining whether we should
      sell
      properties under circumstances where the property managers 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 commissions, fees and other compensation
      based upon our investments.*** Some
      compensation is payable to our advisor whether or not there is cash available
      to
      make distributions to our stockholders. To the extent this occurs, our advisor
      and its affiliates benefit from us retaining ownership of our assets and
      leveraging our assets, while our stockholders may be better served by sale
      or
      disposition or not leveraging the assets. In addition, the advisor’s ability to
      receive fees and reimbursements depends on our continued investment in real
      properties. Therefore, the interest of the advisor and its affiliates in
      receiving fees may conflict with the interest of our stockholders in earning
      income on their investment in our common stock. Because asset management fees
      payable to our advisor are based on total assets under management, including
      assets purchased using debt, our advisor may have an incentive to incur a high
      level of leverage in order to increase the total amount of assets under
      management.




***Our
      sponsor may face conflicts of interest in connection with the management of
      our
      day-to-day operations and in the enforcement of agreements between our sponsor
      and its affiliates.*** The
      property managers and the advisor will manage our day-to-day operations and
      properties pursuant to management agreements 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


Title
      insurance services are being provided by an affiliated party.   From
      time to time, Lightstone 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 the purchase by Lightstone
      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 our behalf. This process results
      in
      terms similar to those that would be negotiated at an arm’s-length
      basis.




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




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




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




***Limitations
      on Changes in Control (Anti-Takeover Provisions).*** 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.





***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.




13




***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 debt service payments 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 debt service payments and dividend
      at any particular level, if at all.




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.




14


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.





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




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





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




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




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





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




15


***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 from time to time experience
      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.




***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.




16





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




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





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





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




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




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




17


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




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




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




·
            liabilities
                for clean-up of undisclosed environmental
                contamination;




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




·
            liabilities
                incurred in the ordinary course of business;
                and




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




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





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





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.




18





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




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




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




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





***Current
      state of debt markets could have a material adverse impact on our earnings
      and
      financial condition.*** The
      commercial real estate debt markets are currently experiencing volatility as
      a
      result of certain factors including the tightening of underwriting standards
      by
      lenders and credit rating agencies and the significant inventory of unsold
      Collateralized Mortgage Backed Securities in the market. Credit spreads for
      major sources of capital have widened significantly as investors have demanded
      a
      higher risk premium. This is resulting in lenders increasing the cost for debt
      financing. Should the overall cost of borrowings increase, either by increases
      in the index rates or by increases in lender spreads, we will need to factor
      such increases into the economics of our acquisitions. This may result in our
      acquisitions generating lower overall economic returns and potentially reducing
      cash flow available for distribution.




The
      recent dislocations in the debt markets has reduced the amount of capital that
      is available to finance real estate, which, in turn, (a) will no longer allow
      real estate investors to rely on capitalization rate compression to generate
      returns and (b) has slowed real estate transaction activity, all of which may
      reasonably be expected to have a material impact, favorable or unfavorable,
      on
      revenues or income from the acquisition and operations of real properties and
      mortgage loans. Investors will need to focus on market-specific growth dynamics,
      operating performance, asset management and the long-term quality of the
      underlying real estate.




In
      addition, the state of the debt markets could have an impact on the overall
      amount of capital investing in real estate which may result in price or value
      decreases of real estate assets.




***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.




19




***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.




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.




20


***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.




***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.




**Lodging
      Industry Risks.**




***We
      may be subject to the risks common to the lodging
      industry.*** Our
      hotels will be subject to all of the risks common to the hotel industry and
      subject to market conditions that affect all hotel properties. These risks
      could
      adversely affect hotel occupancy and the rates that can be charged for hotel
      rooms as well as hotel operating expenses, and generally include:




·
            increases
                in supply of hotel rooms that exceed increases in
                demand;




·
            increases
                in energy costs and other travel expenses that reduce business and
                leisure
                travel;




·
            reduced
                business and leisure travel due to continued geo-political uncertainty,
                including terrorism;




·
            adverse
                effects of declines in general and local economic
                activity;




·
            adverse
                effects of a downturn in the hotel industry;
                and




·
            risks
                generally associated with the ownership of hotels and real estate,
                as
                discussed below.




We
      do not
      have control over the market and business conditions that affect the value
      of
      our lodging properties, and adverse changes with respect to such conditions
      could have an adverse effect on our results of operations, financial condition
      and cash flows. Hotel properties, including extended stay hotels, are subject
      to
      varying degrees of risk generally common to the ownership of hotels, many of
      which are beyond our control, including the following:




·
            increased
                competition from other existing hotels in our
                markets;




·
            new
                hotels entering our markets, which may adversely affect the occupancy
                levels and average daily rates of our lodging
                properties;




·
            declines
                in business and leisure travel;




·
            increases
                in energy costs, increased threat of terrorism, terrorist events,
                airline
                strikes or other factors that may affect travel patterns and reduce
                the
                number of business and leisure
                travelers;




·
            increases
                in operating costs due to inflation and other factors that may not
                be
                offset by increased room rates;




·
            changes
                in, and the related costs of compliance with, governmental laws and
                regulations, fiscal policies and zoning ordinances;
                and




21




·
            adverse
                effects of international, national, regional and local economic and
                market
                conditions.




Adverse
      changes in any or all of these factors could have an adverse effect on our
      results of operations, financial condition and cash flows, thereby adversely
      impacting our ability to service debt and to make distributions to our
      stockholders.




***Third-Party
      management of lodging properties can adversely affect our properties.*** **** If
      we
      invest in lodging properties, such properties will be operated by a third-party
      management company and could be adversely affected if that third-party
      management company, or its affiliated brands, experiences negative publicity
      or
      other adverse developments. Any lodging properties we may acquire are expected
      to be operated under brands owned by an affiliate of our sponsor and managed
      by
      a management company that is affiliated with such brands. Because of this
      concentration, negative publicity or other adverse developments that affect
      that
      operator and/or its affiliated brands generally may adversely affect our results
      of operations, financial condition, and consequently cash flows thereby
      impacting our ability to service debt, and to make distributions to our
      stockholders.




***As
      a REIT, we cannot directly operate our lodging
      properties.*** **** We
      cannot
      and will not directly operate our lodging properties and, as a result, our
      results of operations, financial position, ability to service debt and our
      ability to make distributions to stockholders are dependent on the ability
      of
      our third-party management companies and our tenants to operate our extended
      stay hotel properties successfully. In order for us to satisfy certain REIT
      qualification rules, we cannot directly operate any lodging properties we may
      acquire or actively participate in the decisions affecting their daily
      operations. Instead, through a taxable REIT subsidiary, or taxable REIT
      subsidiary (“TRS”) lessee, we must enter into management agreements with a
      third-party management company, or we must lease our lodging properties to
      third-party tenants on a triple-net lease basis. We cannot and will not control
      this third-party management company or the tenants who operate and are
      responsible for maintenance and other day-to-day management of our lodging
      properties, including, but not limited to, the implementation of significant
      operating decisions. Thus, even if we believe our lodging properties are being
      operated inefficiently or in a manner that does not result in satisfactory
      operating results, we may not be able to require the third-party management
      company or the tenants to change their method of operation of our lodging
      properties. Our results of operations, financial position, cash flows and our
      ability to service debt and to make distributions to stockholders are,
      therefore, dependent on the ability of our third-party management company and
      tenants to operate our lodging properties successfully.




We
      will
      rely on a third-party hotel management company to establish and maintain
      adequate internal controls over financial reporting at our lodging properties.
      In doing this, the property manager should have policies and procedures in
      place
      which allows them to effectively monitor and report to us the operating results
      of our lodging properties which ultimately are included in our consolidated
      financial statements. Because the operations of our lodging properties
      ultimately become a component of our consolidated financial statements, we
      evaluate the effectiveness of the internal controls over financial reporting
      at
      all of our properties, including our lodging properties, in connection with
      the
      certifications we provide in our quarterly and annual reports on Form 10-Q
      and
      Form 10-K, respectively, pursuant to the Sarbanes Oxley Act of 2002. However,
      we
      will not control the design or implementation of or changes to internal controls
      at any of our lodging properties. Thus, even if we believe that our lodging
      properties are being operated without effective internal controls, we may not
      be
      able to require the third-party management company to change its internal
      control structure. This could require us to implement extensive and possibly
      inefficient controls at a parent level in an attempt to mitigate such
      deficiencies. If such controls are not effective, the accuracy of the results
      of
      our operations that we report could be affected. Accordingly, our ability to
      conclude that, as a company, our internal controls are effective is
      significantly dependent upon the effectiveness of internal controls that our
      third-party management company will implement at our lodging properties. Our
      lodging operations were not significant to our overall results in 2007, and
      while we do not consider it likely, it is possible that we could have a
      significant deficiency or material weakness as a result of the ineffectiveness
      of the internal controls at one or more of our lodging properties.




If
      we
      replace a third-party management company or tenant, we may be required by the
      terms of the relevant management agreement or lease to pay substantial
      termination fees, and we may experience significant disruptions at the affected
      lodging properties. While it is our intent to enter into management agreements
      with a third-party management company or tenants with substantial prior lodging
      experience, we may not be able to make such arrangements in the future. If
      we
      experience such disruptions, it may adversely affect our results of operations,
      financial condition and our cash flows, including our ability to service debt
      and to make distributions to our stockholders.




22


***Our
      use of the taxable REIT subsidiary structure will increase our expenses.*** A
      TRS
      structure will subject us to the risk of increased lodging operating expenses.
      The performance of our TRS lessees will be based on the operations of our
      lodging properties. Our operating risks will include not only changes in hotel
      revenues and changes to our TRS lessees’ ability to pay the rent due to us under
      the leases, but also increased hotel operating expenses, including, but not
      limited to, the following cost elements:




·
            wage
                and benefit costs;




·
            repair
                and maintenance expenses;




·
            energy
                costs;




·
            property
                taxes;




·
            insurance
                costs; and




·
            other
                operating expenses.




Any
      increases in one or more these operating expenses could have a significant
      adverse impact on our results of operations, cash flows and financial
      position.




***Failure
      to properly structure our TRS leases could cause us to incur tax
      penalties.*** **** A
      TRS
      structure will subject us to the risk that the leases with our TRS lessees
      do
      not qualify for tax purposes as arms-length which would expose us to potentially
      significant tax penalties. Our TRS lessees will incur taxes or accrue tax
      benefits consistent with a “C” corporation. If the leases between us and our TRS
      lessees were deemed by the Internal Revenue Service to not reflect an
      arms-length transaction as that term is defined by tax law, we may be subject
      to
      tax penalties as the lessor that would adversely impact our profitability and
      our cash flows.




***Failure
      to maintain franchise licenses could decrease our revenues.*** **** Our
      inability or that of our third-party management company or our third-party
      tenants to maintain franchise licenses could decrease our revenues. Maintenance
      of franchise licenses for our lodging properties is subject to maintaining
      our
      franchisor’s operating standards and other terms and conditions. Franchisors
      periodically inspect lodging properties to ensure that we, our third-party
      tenants or our third-party management company maintain their standards. Failure
      by us or one of our third-party tenants or our third-party management company
      to
      maintain these standards or comply with other terms and conditions of the
      applicable franchise agreement could result in a franchise license being
      canceled. If a franchise license terminates due to our failure to make required
      improvements or to otherwise comply with its terms, we may also be liable to
      the
      franchisor for a termination fee. As a condition to the maintenance of a
      franchise license, our franchisor could also require us to make capital
      expenditures, even if we do not believe the capital improvements are necessary,
      desirable, or likely to result in an acceptable return on our investment. We
      may
      risk losing a franchise license if we do not make franchisor-required capital
      expenditures.




If
      our
      franchisor terminates the franchise license, we may try either to obtain a
      suitable replacement franchise or to operate the lodging property without a
      franchise license. The loss of a franchise license could materially and
      adversely affect the operations or the underlying value of the lodging property
      because of the loss associated with the brand recognition and/or the marketing
      support and centralized reservation systems provided by the franchisor. A loss
      of a franchise license for one or more lodging properties could materially
      and
      adversely affect our results of operations, financial condition and our cash
      flows, including our ability to service debt and make distributions to our
      stockholders.




23


***Risks
      associated with employing hotel employees.*** We
      will
      generally be subject to risks associated with the employment of hotel employees.
      Any lodging properties we acquire will be leased to a wholly-owned TRS entity
      and be subject to management agreements with a third-party manager to operate
      the properties that we do not lease to a third party under a net lease. Hotel
      operating revenues and expenses for these properties will be included in our
      consolidated results of operations. As a result, although we do not directly
      employ or manage the labor force at our lodging properties, we are subject
      to
      many of the costs and risks generally associated with the hotel labor force.
      Our
      third-party manager will be responsible for hiring and maintaining the labor
      force at each of our lodging properties and for establishing and maintaining
      the
      appropriate processes and controls over such activities. From time to time,
      the
      operations of our lodging properties may be disrupted through strikes, public
      demonstrations or other labor actions and related publicity. We may also incur
      increased legal costs and indirect labor costs as a result of the aforementioned
      disruptions, or contract disputes or other events. Our third-party manager
      may
      be targeted by union actions or adversely impacted by the disruption caused
      by
      organizing activities. Significant adverse disruptions caused by union
      activities and/or increased costs affiliated with such activities could
      materially and adversely affect our results of operations, financial condition
      and our cash flows, including our ability to service debt and make distributions
      to our stockholders.




***Travel
      and hotel industries may be affected by economic slowdowns, terrorist attacks
      and other world events.*** **** The
      most
      recent economic slowdown, terrorist attacks, military activity in the Middle
      East, natural disasters and other world events impacting the global economy
      had
      adversely affected the travel and hotel industries, including extended stay
      hotel properties, in the past and these adverse effects may continue or occur
      in
      the future. As a result of terrorist attacks around the world, the war in Iraq
      and the effects of the economic recession, subsequent to 2001 the lodging
      industry experienced a significant decline in business caused by a reduction
      in
      both business and leisure travel. We cannot presently determine the impact
      that
      future events such as military or police activities in the U.S. or foreign
      countries, future terrorist activities or threats of such activities, natural
      disasters or health epidemics could have on our business. Our business and
      lodging properties may continue to be affected by such events, including our
      hotel occupancy levels and average daily rates, and, as a result, our revenues
      may decrease or not increase to levels we expect. In addition, other terrorist
      attacks, natural disasters, health epidemics, acts of war, prolonged U.S.
      involvement in Iraq or other significant military activity could have additional
      adverse effects on the economy in general, and the travel and lodging industry
      in particular. These factors could have a material adverse effect on our results
      of operations, financial condition, and cash flows, thereby impacting our
      ability to service debt and ability to make distributions to our
      stockholders.




***Hotel
      industry is very competitive.*** The
      hotel
      industry is intensely competitive, and, as a result, if our third-party
      management company and our third-party tenants are unable to compete
      successfully or if our competitors’ marketing strategies are more effective, our
      results of operations, financial condition, and cash flows including our ability
      to service debt and to make distributions to our stockholders, may be adversely
      affected. The hotel industry is intensely competitive. Our lodging properties
      compete with other existing and new hotels in their geographic markets. Since
      we
      do not operate our lodging properties, our revenues depend on the ability of
      our
      third-party management company and our-third party tenants to compete
      successfully with other hotels in their respective markets. Some of our
      competitors have substantially greater marketing and financial resources than
      we
      do. If our third-party management company and our third-party tenants are unable
      to compete successfully or if our competitors’ marketing strategies are
      effective, our results of operations, financial condition, ability to service
      debt and ability to make distributions to our stockholders may be adversely
      affected.




***Hotel
      industry is seasonal which can adversely affect our hotel properties.*** The
      hotel
      industry is seasonal in nature, and, as a result, our lodging properties may
      be
      adversely affected. The seasonality of the hotel industry can be expected to
      cause quarterly fluctuations in our revenues. In addition, our quarterly
      earnings may be adversely affected by factors outside our control, such as
      extreme or unexpectedly mild weather conditions or natural disasters, terrorist
      attacks or alerts, outbreaks of contagious diseases, airline strikes, economic
      factors and other considerations affecting travel. To the extent that cash
      flows
      from operations are insufficient during any quarter, due to temporary or
      seasonal fluctuations in revenues, we may attempt to borrow in order to make
      distributions to our stockholders or be required to reduce other expenditures
      or
      distributions to stockholders.




24


***Expanding
      use of internet travel websites by customers can adversely affect our
      profitability.*** The
      increasing use of internet travel intermediaries by consumers may experience
      fluctuations in operating performance during the year and otherwise adversely
      affect our profitability and cash flows. Our third party hotel management
      company will rely upon Internet travel intermediaries such as Travelocity.com,
      Expedia.com, Orbitz.com, Hotels.com and Priceline.com to generate demand for
      our
      lodging properties. As Internet bookings increase, these intermediaries may
      be
      able to obtain higher commissions, reduced room rates or other significant
      contract concessions from our third-party management company. Moreover, some
      of
      these Internet travel intermediaries are attempting to offer hotel rooms as
      a
      commodity, by increasing the importance of price and general indicators of
      quality (such as “three-star downtown hotel”) at the expense of brand
      identification. Consumers may eventually develop brand loyalties to their
      reservations system rather than to our third-party management company and/or
      our
      brands, which could have an adverse effect on our business because we will
      rely
      heavily on brand identification. If the amount of sales made through Internet
      intermediaries increases significantly and our third-party management company
      and our third-party tenants fail to appropriately price room inventory in a
      manner that maximizes the opportunity for enhanced profit margins, room revenues
      may flatten or decrease and our profitability may be adversely
      affected.




***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.




25




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





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




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




***We
      may be adversely affected by limitations in our charter on the aggregate amount
      we may borrow.*** Our
      charter 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.




26





***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.




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.




27




In
      December 2007, the Terrorism Risk Insurance Extension Act of 2007 (“TRIEA”) was
      enacted into law. TRIEA extends the federal terrorism insurance backstop through
      2014. TRIEA 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 2014,
      and
      thus mitigate certain of the risks described above.




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




***Compliance
      with Laws.***




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





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





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




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




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




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.




28





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.




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.




29


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**




***If
      we invest our capital in marketable securities of real estate related companies
      pending an acquisition of real estate, our profits may be adversely affected
      by
      the performance of the specific investments we make.*** A
      resolution passed by our Board of Directors allows us from time to time to
      invest up to 30% of our available cash in marketable securities of real estate
      related companies. Issuers of real estate securities generally invest in real
      estate or real estate related assets and are subject to the inherent risks
      associated with real estate related investments discussed below, including
      risks
      relating to rising interest rates or volatility in the credit markets. Our
      investments in marketable securities of real estate related companies will
      involve special risks relating to the particular issuer of securities, including
      the financial condition and business outlook of the issuer. As of December
      31,
      2007, the cost basis of our marketable securities of real estate related
      companies was approximately $12 million, and we included approximately $1.2
      million of unrealized losses related to such securities in accumulated other
      comprehensive loss. Substantial market price volatility caused by general
      economic or market conditions, including disruptions in the credit markets,
      may
      require us to mark down the value of these investments, and our profits and
      results of operations may be adversely affected.





***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.





***Current
      state of debt markets could have a material adverse impact on our earnings
      and
      financial condition.*** The
      commercial real estate debt markets are currently experiencing volatility as
      a
      result of certain factors including the tightening of underwriting standards
      by
      lenders and credit rating agencies and the significant inventory of unsold
      Collateralized Mortgage Backed Securities in the market. Credit spreads for
      major sources of capital have widened significantly as investors have demanded
      a
      higher risk premium. This is resulting in lenders increasing the cost for debt
      financing. Should the overall cost of borrowings increase, either by increases
      in the index rates or by increases in lender spreads, we will need to factor
      such increases into the economics of our acquisitions. This may result in our
      acquisitions generating lower overall economic returns and potentially reducing
      cash flow available for distribution.




The
      recent dislocations in the debt markets has reduced the amount of capital that
      is available to finance real estate, which, in turn, (a) will no longer allow
      real estate investors to rely on capitalization rate compression to generate
      returns and (b) has slowed real estate transaction activity, all of which may
      reasonably be expected to have a material impact, favorable or unfavorable,
      on
      revenues or income from the acquisition and operations of real properties and
      mortgage loans. Investors will need to focus on market-specific growth dynamics,
      operating performance, asset management and the long-term quality of the
      underlying real estate.




In
      addition, the state of the debt markets could have an impact on the overall
      amount of capital investing in real estate which may result in price or value
      decreases of real estate assets.




30


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





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




**Tax
      Risks**




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




If
      we
      fail to 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.*** We
      qualified as a REIT in 2006. 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. Our legal counsel, 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.




31


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




***Even
      REITS are subject to federal and state income taxes.*** Even if
      we qualify and maintain our status as a REIT, we may become subject to federal
      income taxes and related state taxes. For example, if we have net income from
      a
“prohibited transaction,” such income will be subject to a 100% tax. We may not
      be able to make sufficient distributions to avoid excise taxes applicable to
      REITs. We may also decide to retain income we earn from the sale or other
      disposition of our property and pay income tax directly on such income. This
      will result in our stockholders being treated for tax purposes as though they
      had received their proportionate shares of such retained income.





However,
      to the extent we have already paid income taxes directly on such income, our
      stockholders will also be credited with their proportionate share of such taxes
      already paid by us. Stockholders that are tax-exempt, such as charities or
      qualified pension plans, would have no benefit from their deemed payment of
      such
      tax liability. We may also be subject to state and local taxes on our income
      or
      property, either directly or at the level of the Operating Partnership or at
      the
      level of the other companies through which we indirectly own our
      assets.




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




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




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




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.




32


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.





33





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





None
      applicable.




**ITEM
      2. PROPERTIES:**


**Location**
              
              **Year
                  Built (Range of years built)**
              
              **Leasable
                  Square Feet**
              
              **Percentage
                  Occupied as of 12/31/07**
              
              **Revenue
                  per Square Foot at 12/31/07****Wholly-Owned
                  Real Estate Properties:**St.
                  Augustine Outlet Malls**(2)**
              
              
              St.
                  Augstine, FL
              
              
              1998
              
              
              253,346
              
              
              60.33
              %
              $
              10.24Oakview
                  Power Center
              
              
              Omaha,
                  NE
              
              
              1999
                  - 2005
              
              
              177,331
              
              
              99.19
              %
              $
              14.117
                  Flex/Office/Industrial Buildings
              
              
              New
                  Orleans, LA
              
              
              1980-2000
              
              
              339,700
              
              
              93.14
              %
              $
              9.164
                  Flex/Industrial Buildings
              
              
              San
                  Antonio, TX
              
              
              1982-1986
              
              
              484,260
              
              
              94.12
              %
              $
              4.153
                  Flex/Industrial Buildings
              
              
              Baton
                  Rouge, LA
              
              
              1985-1987
              
              
              182,792
              
              
              100.00
              %
              $
              6.46Brazos
                  Crossing Power Center
              
              
              Lake
                  Jackson, TX
              
              
              2007-2008
              
              
              **(1**
              **)**Sarasota
                  Industrial Building
              
              
              Sarasota,
                  FL
              
              
              1992
              
              
              281,276
              
              
              0.00
              %
              $
              -**Portfolio
                  total**
              
              
              
              
              
              **1,718,705**
              
              
              **74.69**
              **%**
  **(1)**Opened March 2008**(2)**Currently
                  undergoing expansion/renovation
  **Location**
              
              
              **Year
                  Built (Range of years built**)****
              
              
              **Leasable
                  Units**
              
              
              **Percentage
                  Occupied as of 12/31/07**
              
              
              **Revenue
                  per Unit at 12/31/07**Four
                  Multi Family Apartment Buildings
              
              
              Detroit,
                  MI
              
              
              1965-1970
              
              
              1,017
              
              
              91.54
              %
              $
              7,764.88Five
                  Multi Family Apartment Buildings
              
              
              Greensboro
                  and Charlotte, NC/Tampa, FL
              
              
              1980-1985
              
              
              1,576
              
              
              86.93
              %
              $
              6,671.85**Portfolio
                  total**
              
              
              
              
              
              **2,593**
              
              
              **88.74**
              **%**
  **Location**
              
              
              **Year
                  Built**
              
              
              **Available
                  Rooms**
              
              
              **Vacancy
                  Percentage as of 12/31/07**
              
              
              **Revenue
                  per Available Room at 12/31/07****Wholly-Owned
                  Operating Properties:**
              
              
              
              
              
              
              
              
              **(3**
              **)**
              
              
              
              
              **(2**
              **)**Katy
                  and Sugarland Extended Stay Hotels
              
              
              Houston,
                  TX
              
              
              1998
              
              
              22,040
              
              
              52.50
              %
              $
              23.70
  **(3)**Represents period of Ownership from 10/17/07 Acquisition
  **Location**
              
              
              **Year
                  Built**
              
              
              **Leasable
                  Square Feet**
              
              
              **Percentage
                  Occupied as of 12/31/07**
              
              
              **Revenue
                  per Square Foot at 12/31/07****Unconsolidated
                  Joint Venture****Properties:**1407
                  Broadway**(4)**
              
              
              New
                  York, NY
              
              
              1952
              
              
              914,762
              
              
              89.68
              %
              $
              39.74
  **(4)**Currently undergoing renovations





34




**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.  Counsel for
      the Lightstone REIT made motion to dismiss Mr. Gould’s complaint, which was
      granted by Judge Sweeney.  Mr. Gould has filed an appeal of the decision
      dismissing his case, which is pending.   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 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 there under. On February
      16, 2007, Office Owner received a Notice to Cure from Sublessor stating the
      transfer of the Sublease Interest occurred in violation of the Sublease given
      Sublessor's position that Office Seller is in default. Office Owner will
      commence and vigorously pursue litigation in order to challenge the default,
      receive an injunction and toll the termination period provided for in the
      Sublease.





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





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




35





**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 14, 2008, we had 16.6 million common shares outstanding, held by a
      total of 4,053 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.





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, 2007. 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.




36





The
      Board
      of Directors of the Lightstone REIT declared a dividend for each quarter in
      2007, 2006 and for the quarter ending March 31, 2008. 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, 2007 and 2006 were
      $7.1
      million and $1.1 million, respectively. The dividend declared for the quarter
      ending March 31, 2008 will be paid in cash, in April 2008, to stockholders
      of
      record as of March 31, 2008.




**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. This period has expired and we are
      no
      longer obligated to repay these amounts.





**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, 2007, we had sold approximately 13.6 million shares for gross
      offering proceeds of approximately $131.5 million. This amount includes
      approximately 228,000 shares sold pursuant to our Dividend Reinvestment Plan
      for
      gross proceeds of approximately $2.2 million. From the effective date of our
      public offering through December 31, 2007, we have incurred the following
      expenses in connection with the issuance and distribution of the registered
      securities :


Type
                  of Expense Amount 
                  Estimated/ActualUnderwriting
                  discounts and commissions
              
              $
              9,468,297
              
              
              ActualFinders’
                  fees
              
              
              -Expenses
                  paid to or for underwriters
              
              
              -Other
                  expenses to affiliates
              
              
              -Other
                  expenses paid to non-affiliates
              
              
              3,706,724
              
              
              ActualTotal
                  expenses
              
              $
              13,175,021




37




With
      net offering proceeds of $131.5 million as of
      December 31, 2007, and new mortgage debt in the amount of $237.6 million, and
      proceeds from note s payable of $5.8 million, as reflected under “Cash Flows
      from Financing Activities” in our consolidated statements of cash flows, we
      acquired approximately $305.2 million in real estate investments and related
      assets. Cumulatively, we have used the net offering proceeds as
      follows:




**At
                December 31, 2007**Construction
                of plant, building and facilities
            
            $
            -Purchase
                of real estate interests
            
            
            89,903,993Acquisition
                of other businesses
            
            
            -Repayment
                of indebtedness
            
            
            -Purchase
                and installation of machinery and equipment
            
            
            -Working
                capital (as of December 31, 2007)
            
            
            29,589,815Temporary
                investments (as of December 31, 2007)
            
            
            11,952,188Other
                uses
            
            
            -**Total
                uses**
            
            $
            131,445,996




As
        of
        March 14, 2008, we have sold approximately 16.6 million shares at an aggregate
        offering price of $161.3 million.
 **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.


**2007**
              
              **2006**
              
              **2005**
              
              **2004****(1)****Operating
                  Data:**Revenues
              
              $
              25,259,655
              
              $
              8,262,667
              
              
              —
              
              $
              —Loss
                  from investment in unconsolidated Joint Venture
              
              
              (7,267,949
              )
              
              -
              
              
              -
              
              
              -Net
                  loss before loss allocated to minority interests
              
              
              (9,242,416
              )
              
              (1,536,430
              )
              
              (117,571
              )
              
              —Loss
                  allocated to minority interests
              
              
              26
              
              
              86
              
              
              1,164
              
              
              —Net
                  loss applicable to common shares
              
              
              (9,242,390
              )
              
              (1,536,344
              )
              
              (116,407
              )
              
              —Basic
                  and diluted loss per common share
              
              
              (0.98
              )
              
              (0.96
              )
              
              (5.82
              )
              
              —Distributions
                  declared per common share
              
              
              7,125,331
              
              
              1,101,708
              
              
              —
              
              
              —Weighted
                  average common shares outstanding-basic and diluted
              
              
              9,195,369
              
              
              1,594,060
              
              
              20,000
              
              
              20,000**Balance
                  Sheet Data:**Total
                  assets
              
              $
              369,701,354
              
              $
              140,708,217
              
              $
              430,996
              
              $
              205,489Long-term
                  obligations
              
              $
              243,435,657
              
              $
              95,475,000
              
              
              —
              
              $
              —Stockholder's
                  Equity
              
              $
              100,112,198
              
              $
              35,975,704
              
              $
              83,593
              
              $
              200,000


(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.





38




**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, residential and
      hospitality properties, principally in the United States. Principally through
      the Lightstone Value Plus REIT, LP, (the “Operating Partnership”), Our
      acquisitions may include both portfolios and individual properties. We expect
      that our commercial holdings will consist of retail (primarily multi-tenanted
      shopping centers), lodging (primarily extended stay hotels), industrial and
      office properties and that our residential properties will


be
      principally comprised of ‘‘Class B’’ multi-family complexes. 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 mid-scale,
      extended stay lodging properties and 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;
      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. As of December
      31, 2007, Lightstone REIT has completed nine acquisitions as of December 31,
      2007: 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; a
      portfolio of 12 industrial and 2 office buildings in Louisiana and Texas,
      on February 1, 2007; and a land parcel in Lake Jackson, TX, intended for
      immediate development as a power retail center, on June 29, 2007, two hotels
      in
      Houston, Texas on October 17, 2007, five multi family apartment communities,
      one
      in Tampa, Florida, two in Greensboro, North Carolina and two in Charlotte,
      North
      Carolina on November 16, 2007, and an industrial building in Sarasota, Florida
      on November 13, 2007.





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 throughout the United
      States (Hawaii, South Dakota, Vermont and Wyoming excluded), the District of
      Columbia, Puerto Rico and Canada.




39





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. Aggregate long-term permanent borrowings in
      excess of 75% of the aggregate fair market value of all properties, currently
      exceeds 75% and was appropriately 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. At December 31, 2006, we qualified as a REIT and have elected
      to be
      taxed as a REIT for the taxable year ending December 31, 2007 and 2006. We
      plan
      to own substantially all of our assets and conduct our operations through the
      Operating Partnership. The Company has assessed it qualified as a REIT for
      the
      year ended December 31, 2007.




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, 2007, cumulative gross offering
      proceeds of approximately $131.5 **** 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.





Lightstone
      SLP, LLC, an affiliate of the Advisor, intends to periodically purchase special
      general partner interests (“SLP Units”) in the Operating Partnership at a cost
      of $100,000 per unit for each $1.0 million in offering subscriptions. Proceeds
      from the sale of the SLP Units will be used to fund organizational and offering
      costs incurred by the Company. As of December 31, 2007, offering costs of $13.2
      million have been substantially offset by $13.0 million of proceeds from the
      sale of SLP Units. Lightstone SLP, LLC has purchased an additional $0.2 million
      of SLP Units subsequent to December 31, 2007





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-Q.




40




Beginning
      with the year ended December 31, 2006, the Company 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 was recorded to date. 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. As of December 31, 2007, the Company has complied with the
      requirements for maintaining its REIT status.





**2007
      Acquisitions**




Manhattan
      Office
      Building




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 the Sponsor (the “Joint Venture”). 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, and as of the acquisition date, was 87.6%
      occupied (approximately 300 tenants) and leased by tenants generally
      engaged in the female apparel business. The ground lease, dated as of January
      14, 1954, provides for multiple renewal rights, with the last renewal period
      expiring on December 31, 2048. The Sublease Interest runs concurrently with
      this
      ground lease.





The
      acquisition price for the Sublease Interest was $122 million, exclusive of
      acquisition-related costs incurred by the Joint Venture ($3.5 million), pro
      rated operating expenses paid at closing ($4.1 million), financing-related
      costs
      ($1.9 million) and construction, insurance and tax reserves ($1.0 million).
      The
      acquisition was funded through a combination of $26.5 million of capital and
      a
      $106.0 million advance on a $127.3 million variable rate mortgage loan funded
      by
      Lehman Brothers Holding, Inc. As an inducement to Lender to make the loan,
      Owner
      has agreed to provide Lender with a 35% net profit interest in the project,
      which is contingent upon a capital transaction, as defined as any transaction
      involving the sale, assignment, transfer, liquidation, condemnation or
      settlement in lieu thereof, disposition, financing, refinancing or any other
      conversion to cash of all or any portion of the property or equity or membership
      interests in Borrower, directly, other than the leasing of space for occupancy
      and/or any other transaction with respect to the Property or the direct or
      indirect ownership interests in Borrower outside the ordinary course of
      business.   To date, the lender did not share in any net profits of the
      project. The lender also has a conversion option, which if upon exercised,
      would
      grant the lender a special membership interest in the Joint Venture whereby
      the
      lender will receive 35% of all distributions resulting from a Capital
      transaction after the return of the member’s equity investment plus the member’s
      allowed returns as specified in the “Net Profits Agreement”. 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 acquisition and legal fees were charged to expense by the
      Company during the first quarter of 2007, and are included in general and
      administrative expenses for the year ended December 31, 2007.





The
      Company accounted for the investment in this unconsolidated joint venture under
      the equity method of accounting as the Company exercises significant influence,
      but does not control these entities. Initial equity from our co-venturer totaled
      $13.5 million (representing a 51% ownership interest). Our initial capital
      investment, funded with proceeds from our common stock offering, was $13.0
      million (representing a 49% ownership interest). This $13.0 million investment
      was recorded initially at cost and will be subsequently adjusted for cash
      contributions and distributions, and the Company’s share of earnings and losses.
      The Company contributed an additional $0.6 million in 2007. 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. For the year ended December 31, 2007, the Company’s results
      included a $7.3 million loss from investment in this unconsolidated joint
      venture, resulting in a net investment balance of approximately $6.3 million
      as
      of December 31, 2007. 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 $16.4 million are
      available to fund these improvements.




41




In-place
      rents, net of rent concessions, and average occupancy for the property at
      December 31, 2007 was as follows:


As
                  of
                December
                  31, 2007In-place
                  annualized rents
              
              $
              36.4
                  millionOccupancy
                  Percentage
              
              
              89.7
              %





***Gulf
      Coast Industrial Portfolio***




On
      February 1, 2007, the Company, through wholly owned subsidiaries of the
      Operating Partnership, acquired a portfolio of industrial and 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 the acquisition, 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, 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.





In-place
      rents, net of rent concessions, and occupancy for the properties at December
      31,
      2007 were as follows:


As
                    of
                  December
                    31, 2007In-place
                    annualized rents
                
                $
                6.3
                    millionOccupancy
                    Percentage
                
                
                94.9
                %




***Brazos
      Crossing Mall***





On
      June
      29, 2007, a subsidiary of the Operating Partnership acquired a 6.0 acre land
      parcel in Lake Jackson, Texas for immediate development of a 61,287 square
      foot
      power center. The land was purchased for $1.65 million cash and was funded
      100%
      from the proceeds of the Company’s offering. Upon completion in March 2008, the
      center will be occupied by three triple net tenants: Pet Smart, Office Depot
      and
      Best Buy.





The
      purchase and sale agreement (the “Land Agreement”) for this transaction was
      negotiated between Lake Jackson Crossing Limited Partnership (formerly an
      affiliate of the Sponsor) and Starplex Operating, LP, an unaffiliated entity
      (the "Land Seller"). Prior to the closing, a 99% limited partnership interest
      in
      the Lake Jackson Limited Partnership was assigned to the Operating Partnership
      and the membership interests in Brazos Crossing LLC (the 1% general partner
      of
      the Lake Jackson Limited Partnership) were assigned to the Company.





The
      land
      parcel was acquired at what represents a $2.1 million discount from the
      expressed $3.75 million purchase price, with such difference being subsidized
      and funded by a retail affiliate of the Sponsor. The sale of the land parcel
      was
      a condition of the Seller’s agreement to execute a new movie theater lease at
      the Sponsor affiliate’s nearby retail mall. The Company owns a 100% fee simple
      interest in the land parcel and retail power center. The Sponsor’s affiliate
      will receive no future benefit or ownership interests from this
      transaction.




42





The
      Company entered into a construction loan to fund the development of the power
      retail center at its Lake Jackson, Texas Location. The loan requires monthly
      installments of interest only through the first 12 months and bears interest
      at
      150 basis points (1.5%) in excess of LIBOR. For the second twelve months,
      principal payments shall be made in monthly installments in amounts equal to
      one-twelfth of the principal component of an annual amortization of the
      principal of the loan on the basis of an assumed interest rate of 6.82% and
      a
      thirty year term. The loan is secured by acquired real estate and is
      non-recourse to the Company. The total cost of the project, inclusive of project
      construction, tenant incentives, leasing costs, and land is estimated at $10.2
      million. Because the debt financing for the acquisition may exceed certain
      leverage limitations of the REIT, the Board, including all of its independent
      directors has approved any leverage exceptions as required by the Company’s
      Articles of Incorporation.




Three
      tenants will occupy 100% of the property’s rentable square footage. The
      following table sets forth the name, business type, primary lease terms and
      certain other information with respect to each of these major
      tenants:


**Name
                  of Tenant**
              
              **BusinessType**
              
              **Square
                  Feet Leased**
              
              **Percentage
                  of Leasable Space**
              
              **Annual
                  Rent Payments**
              
              **Lease
                  Term from Commencement**
              
              **Party
                  with Renewal Rights**Best
                  Buy
              
              
              Electronics
                  Retailer
              
              
              20,200
              
              
              32.90
              %
              $
              260,000
              
              
              10
                  years
              
              
              TenantOffice
                  Depot
              
              
              Office
                  Supplies Retailer
              
              
              21,000
              
              
              34.30
              %
              $
              277,200
              
              
              10
                  years
              
              
              TenantPetsmart
              
              
              Pet
                  Supply Retailer
              
              
              20,087
              
              
              32.80
              %
              $
              231,001
              
              
              10
                  years
              
              
              Tenant




***Houston
      Extended Stay Hotels***





On
      October 17, 2007, the Company, through TLG Hotel Acquisitions LLC, a wholly
      owned subsidiary of our operating partnership (together with such subsidiary,
      the “Houston Partnership”), acquired two hotels located in Houston, TX (the
“Katy Hotel”) and Sugar Land, TX (the “Sugar Land Hotel” and together with the
      Katy Hotel, the “Hotels”) from Morning View Hotels - Katy, LP, Morning View
      Hotels - Sugar Land, LP and Point of Southwest Gardens, Ltd . , pursuant to
      an
      Asset Purchase and Sale Agreement. The seller is not an affiliate of the Company
      or its subsidiaries.





Prior
      to
      the acquisition of the Hotels, our board of directors expanded the Company’s
      eligible investments to include the acquisition, holding and disposition of
      hotels (primarily extended stay hotels). The reasons for such change include
      the
      expertise of our sponsor who acquired the Extended Stay Hotels group of
      companies (“ESH”) and control of its management company (HVM L.L.C.) which
      operates 684 extended stay hotels. The ability to draw upon their expertise,
      the
      intense competition in the real estate market for all types of assets and the
      ability to better diversify the Company’s portfolio, caused our board of
      directors to review the Company’s investment objectives and expand them to
      include lodging facilities.





The
      Hotels were recently remodeled by the previous owner; however the Company
      intends to make a $2.8 million dollar investment in capital expenditures to
      convert the Hotels to Extended Stay Deluxe (“ESD”) brand properties. The ESD
      brand is under license from an affiliate within the Extended Stay Hotels group
      of companies. The Company expects these additional renovations to be conducted
      over a 1-year period and will include implementing ESD’s national reservation
      system, new carpeting, new paint, new signage, exterior façade improvements,
      re-striping parking lot, guest room upgrades, landscaping and constructing
      pools.





The
      acquisition price for the Hotels was $16 million inclusive of closing costs.
      In
      connection with the transaction, the Company’s advisor received an acquisition
      fee equal to 2.75% of the contract price ($15.2 million), or approximately
      $0.4
      million.





The
      acquisition was funded through a combination of $6.0 million in offering
      proceeds and approximately $10 million in loan proceeds from a floating rate
      mortgage loan secured by the Hotels.




43





The
      Company has established a taxable REIT subsidiary, LVP Acquisitions Corp. (“LVP
      Corp”), which has entered into operating lease agreements with each of the Katy
      Hotel and the Sugar Land Hotel, respectively, and LVP Corp. has entered into
      management agreements with HVM L.L.C., a controlled affiliate of our sponsor,
      for the management of the hotels.





In
      connection with the acquisition of the Hotels, the Houston Partnership along
      with ESD #5051 - Houston - Sugar Land, LLC and ESD #5050 - Houston - Katy
      Freeway, LLC, its wholly owned subsidiaries (the “Houston Borrowers”) secured a
      mortgage loan from Bank of America, N.A. in the principal amount of $12.85
      million, which includes up to an additional $2.8 million of renovation proceeds
      which will be borrowed as the renovation proceeds.





The
      mortgage loan has a term of one year with the option of a 6-month term
      extension, bears interest on a daily basis expressed as a floating rate equal
      to
      the lesser of (i) the maximum non-usurious rate of interest allowed by
      applicable law or (ii) the British Bankers Association Libor Daily Floating
      Rate
      plus one hundred seventy-five basis points (1.75%) per annum rate and requires
      monthly installments of interest only through the first 12 months. The mortgage
      loan will mature on October 16, 2008, subject to the 6-month extension option
      described above, at which time payment of the entire principal balance, together
      with all accrued and unpaid interest and all other amounts payable thereunder
      will be due. The mortgage loan will be secured by the Hotels and will be
      non-recourse to the Company. The Company intends to extend, repay or refinance
      this loan upon its maturity in October of 2008.





In
      connection with the Loan, the Company guaranteed the complete performance of
      the
      Houston Borrowers’ obligations with respect to the renovations and certain other
      customary guarantees.





***Camden
      Properties***





On
      November 16, 2007, the Company through wholly owned subsidiaries of the
      partnership acquired five apartment communities (“Camden Properties”) located in
      Tampa, Florida (one property), Charlotte, North Carolina (two properties) and
      Greensboro, North Carolina (two properties) from Camden Operating, L.P. (the
      “Seller”). The Seller is not affiliated with the Company or its subsidiaries.





The
      Properties, built between 1980 and 1987, are comprised of 1,576 apartment units,
      in the aggregate, contain a total of 1,124,249 net rentable square feet, and
      were 94% occupied at acquisition.




The
      aggregate acquisition price for the Camden Properties was approximately $99.3
      million, including acquisition-related transaction costs. Approximately $20.0
      million of the acquisition cost was funded with offering proceeds from the
      sale
      of the Company’s common stock and approximately $79.3 million was funded with
      five substantially similar fixed rate loans with Fannie Mae secured by each
      of
      the Camden Properties.





In
      connection with the acquisition of the properties, our Advisor received an
      acquisition fee of 2.75% of the gross contract price for the Camden Properties
      or approximately $2.65 million.





On
      November 16, 2007, in connection with the acquisition of the Camden Properties,
      the Company through its wholly owned subsidiaries obtained from Fannie Mae
      five
      substantially similar fixed rate mortgages aggregating $79.3 million (the
“Loans”). The loans have a 30 year amortization period, mature in 7 years, and
      bear interest at a fixed rate of 5.44% per annum. The loans require monthly
      installments of interest only through the first three years and monthly
      installments of principal and interest throughout the remainder of their stated
      terms. The Loans will mature on December 1, 2014, at which time a balance of
      approximately $75.0 million will be due. Although the loans were allocated
      among
      the Camden Properties, the aggregate loan amount is secured by all of the
      Properties.




44





In-place
      rents, net of rent concessions, and occupancy for the properties at December
      31,
      2007 were as follows:


As
                  of
                December
                  31, 2007In-place
                  annualized rents
              
              $
              10.5
                  millionOccupancy
                  Percentage
              
              
              86.9
              %


***Sarasota,
      Florida***





On
      March
      1, 2007, the Company entered into an option agreement to participate in a
      joint-venture with its Sponsor (the “JV Option” with respect to the potential
      joint venture, the “Joint Venture”) for the purchase of a property located at
      2150 Whitfield Avenue, Sarasota, Florida (the “Sarasota Property”). On November
      15, 2007, the Company exercised the JV Option and, through a wholly-owned
      subsidiary of the Company’s operating partnership, entered into the Joint
      Venture and acquired the Sarasota Property.




In
      July,
      2007, CAD Funding, LLC (“CAD”), an affiliate of Park Avenue Funding, LLC, had
      the highest bid on the Sarasota Property in a foreclosure action. Park Avenue
      Funding, LLC, is a real estate lending company founded in 2004 and an affiliate
      of the Company’s Advisor and Sponsor. CAD initiated the foreclosure action
      following the default of an unaffiliated third party on a loan made to the
      third
      party by CAD, for which the Sarasota Property served as security. Prior to
      the
      entry of the foreclosure judgment, the Sponsor expressed an interest in bidding
      at the foreclosure sale in anticipation that the Registrant would exercise
      the
      JV Option. On August 6, 2007, the Sarasota Property was indirectly acquired
      by
      the Sponsor. The Sarasota Property was contributed to the Joint Venture prior
      to
      the Registrant’s exercise of the JV Option. The contribution to the Joint
      Venture by the Company was $13.1 million of offering proceeds used to acquire
      the Sarasota Property. The property was independently appraised in May of 2006
      for $17.4 million. At December 31, 2007, the Company holds a 100% interest
      in
      the Joint Venture, and the Sponsor remains a member in the joint
      venture  The
      Company now owns 100% of the joint venture and the joint venture is fully
      consolidated in the Company’s financial statements for the year ended December
      31, 2007.




In
      evaluating the Sarasota Property as a potential acquisition, we have considered
      a variety of factors, and determined that the acquisition cost was at a
      substantial discount to current market value. The Sarasota Property is subject
      to competition from similar properties within its market area, and economic
      performance could be affected by changes in local economic conditions. The
      Sarasota Property currently does not possess a tenant and is experiencing
      negative cash flows, however the Venture is currently negotiating with
      prospective tenants.




As
      of
      December 31, 2007, the approximate fixed future minimum rentals from the
      Company’s commercial real estate properties, excluding Brazos Crossing which was
      not yet open at December 31, 2007, are as follows:


Beyond
              
              TotalBuilding
              
              2008
              
              2009
              
              2010
              
              2011
              
              2012
              
              2012
              
              Min.
                  RentSt
                  Augustine
              
              $
              1,848,478
              
              $
              1,319,168
              
              $
              659,593
              
              $
              242,863
              
              $
              24,516
              
              $
              9,842
              
              $
              4,104,460Oakview
                  Plaza
              
              
              2,543,280
              
              
              2,432,693
              
              
              1,929,906
              
              
              1,592,466
              
              
              1,592,466
              
              
              1,633,716
              
              
              11,724,527Gulf
                  Industrial Portfolio
              
              
              5,833,708
              
              
              4,478,402
              
              
              2,458,461
              
              
              1,483,635
              
              
              433,669
              
              
              28,274
              
              
              14,716,149Total
              
              $
              10,225,466
              
              $
              8,230,263
              
              $
              5,047,960
              
              $
              3,318,964
              
              $
              2,050,651
              
              $
              1,671,832
              
              $
              30,545,136





45


**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.




***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.




46





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.




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.




47




***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.




***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.





48


**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.*





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 14,
      2008.





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,
      2007, offering costs of $13.2 million have been substantially offset by $13.0
      million of proceeds from the sale of SLP Units. Lightstone SLP, LLC has
      purchased an additional $0.2 million of SLP Units subsequent to December
      31, 2007





**Income
      Taxes**





We
      elected 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 has net operating loss carryforwards for Federal income tax purposes
      for
      the years ended December 31, 2007 and 2006. The availability of such loss
      carryforwards 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 losses will
      be
      fully offset by a valuation allowance of the same amount.




49





**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. We continued
      to acquire properties throughout 2008, on January 4, 2007; a portfolio of 12
      industrial and 2 office buildings in Louisiana and Texas, on February 1,
      2007; and a land parcel in Lake Jackson, TX, intended for immediate development
      as a power retail center, on June 29, 2007, two hotels in Houston, Texas on
      October 17, 2007, five multi family apartment communities, one in Tampa,
      Florida, two in Greensboro, North Carolina and two in Charlotte, North Carolina
      on November 16, 2007, and an industrial building in Sarasota, Florida on
      November 13, 2007. 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.





The
      analysis included in the management discussion and analysis below is not on
      a
      property by property basis. As we have a limited operating history, and we
      have
      completed our first nine acquisitions over the past two years, the majority
      of
      any all fluctuations are the result of these acquisitions.





***Comparison
      of the year ended December 31, 2007 versus the year ended December 31,
      2006***





***Revenues***




Total
      revenues more than tripled as compared to 2006. Total Revenues for 2007 were
      $25.3 million compared to $8.3 million for the year ended December 31, 2006.
      Rental income increased by approximately $14.3 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, a portfolio
      of 12 industrial and 2 office buildings in Louisiana and Texas, on February
      1, 2007; and a land parcel in Lake Jackson, TX, intended for immediate
      development as a power retail center, on June 29, 2007, two hotels in Houston,
      Texas on October 17, 2007, five multi family apartment communities, one in
      Tampa, Florida, two in Greensboro, North Carolina and two in Charlotte, North
      Carolina on November 16, 2007. Tenant recovery income increased by approximately
      $2.7 million primarily as a result of our acquiring the Belz Outlets in St.
      Augustine, Florida, the Oakview Center in Omaha, Nebraska, and the portfolio
      of
      12 industrial and 2 office buildings in Louisiana and Texas.




***Total
      Property Expenses***




Total
      expenses increased by $14.2 million to approximately $22.2 million, for the
      year
      ended December 31, 2007, compared to $8.0 million for the same period last
      year.
      Increases in property operating expenses ($5.9 million), real estate taxes
      ($1.9
      million), and depreciation and amortization ($3.5 million) were primarily the
      result of the acquisition of a full year of expenses for the 2006 acquisitions,
      and the additional expenses associated with all of the 2007 acquisitions.





***General
      and administrative expenses***





General
      and administrative costs increased by $2.9 million to $3.7 million, primarily
      as
      a result of the payment of acquisition and legal fees in the amount of $1.6
      million and $0.1 million, respectively, related to the Lightstone REIT’s
      investment in the sub lease interest to a ground lease of a Manhattan office
      building payment, and asset management fees in the amount of $1.0 million,
      and
      costs incurred related to outside consulting fees to advise the Company
      regarding Sarbanes Oxley compliance testing performed in 2007. General and
      administrative expenses for the year ended December 31, 2006 totaled $0.8
      million, which included asset management fees of $0.3 million. We expect general
      and administrative expenses to increase in the future as a result of
      acquisitions in future periods.





***Depreciation
      and Amortization***




Depreciation
      and amortization expense increased by $3.5 million, in 2007 as compared to
      2006 primarily due to the inclusion of a full year of expenses for the 2006
      acquisitions, and the additional expenses associated with all of the 2007
      acquisitions.




50





***Interest
      Income***




Interest
      income increased by approximately $1.4 million, due primarily to the increase
      in
      interest and dividend income recorded on the short-term investments and
      marketable securities. The Cash and cash equivalents, including marketable
      securities at December 31, 2007, was $40.3 million, or a $21.0 million increase
      over the balance at December 31, 2006.





***Other
      Income***




Other
      income increased by approximately $0.8 million due to increases in vending
      and
      other ancillary revenue sources at primarily our multi family properties
      acquired in June of 2006 and November of 2007.




***Interest
      expense***




Interest
      expense increased $6.8 million for the year ended December 31, 2007 as compared
      to 2006, due to the inclusion of a full year of expenses for the 2006
      acquisitions, and the additional expenses associated with all of the 2007
      acquisitions.





***Minority
      interest***





The
      loss
      allocated to minority interests of approximately $26 and $86 for the year ended
      December 31, 2007 and 2006, respectively, relates to the interests in the
      Operating Partnership held by our Sponsor.




***Comparison
      of the year ended December 31, 2006 versus the year ended December 31,
      2005***





***Revenues***




Total
      revenues increased 100%, or $8.3 million for the year 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.




***Total
      Property Expenses***




Total
      expenses increased by $7.9 million to approximately $8.0 million, for the year
      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.




51





***Interest
      Income***




Interest
      income increased by approximately $0.5 million, due to the increase in the
      Company’s average balance of cash and cash equivalents for the twelve-month
      period ending December 31, 2006.





***Other
      Income***




Other
      income increased by approximately $0.4 million related to vending and other
      ancillary revenue sources primarily at our south eastern Michigan multi-family
      properties acquired on June 29, 2006.




***Interest
      expense***




Interest
      expense increased 100%, or approximately $2.6 million for the year 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.




**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 have two loans which mature
      in 2008, which had an outstanding balance of $10.4 million at December 31,
      2007.
      The Company intends to extend, repay or refinance this loan upon its maturity
      in
      October of 2008.




52





We
      currently have $237.6 million of outstanding mortgage debt, and an additional
      $5.8 million of outstanding notes payable. 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.





The
      Company has two development projects which were ongoing at December 31, 2007.
      The Company is in the process of expanding and renovating its St. Augustine
      center. The Company expects to complete the expansion and renovation in the
      fourth quarter of 2008. The Company purchased the land adjacent to the existing
      center and the related development rights in the fourth quarter of 2007, and
      began the renovation and expansion. Total project costs to date at December
      31,
      2007 totaled approximately $5.0 million, including the purchase of the land
      and
      the development rights. Total project costs are expected to estimate
      approximately $35.2 million. The Company intends to fund the costs of this
      project using a portion of the proceeds from our offering.





In
      addition, the Company completed it development of its Brazos Crossing Center
      in
      March of 2008. The total project costs are estimated to be approximately $10.2
      million, and will be funded primarily with the $8.2 million of notes payable.
      The Company had drawn $5.8 million as of December 31, 2007. The remainder of
      the
      costs will be funded using proceeds of the offering. Other than those discussed
      above, the Company does not have any other significant capital plans for
      2008.




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, 2007, our total borrowings
      represented 216% 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.




53





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
      property management fees of $1.1 million, $0.3 million and $0 were recorded
      for
      amounts due to the Advisor or its affiliates for the years ended
      December 31, 2007, 2006 and 2005, respectively.





Total
      asset management and acquisition fees to the Advisor of $7.6 million, $3.0
      million and $0 were recorded for the years ended December 31, 2007, 2006
      and 2005, respectively. As of December 31, 2007, there were less than $0.1
      million due to an affiliate of our Advisor, for the reimbursement of property
      level operating expenses. 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.





As
      of
      December 31, 2007, we had approximately $29.6 million of cash and cash
      equivalents on hand and $9.6 million of refundable escrow deposits. In addition,
      we held marketable securities in the amount of $10.8 million at December 31,
      2007. Our cash and cash equivalents on hand resulted primarily from proceeds
      from our Offering.




***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:


**Year
                  Ended December 31, 2007**
              
              **Year
                  Ended December 31, 2006**
              
              **Year
                  Ended December 31, 2005**Cash
                  flows provided by (used in) operating activities
              
              $
              6,651,989
              
              $
              1,722,853
              
              $
              (80,060
              )Cash
                  flows used in investing activities
              
              
              (227,971,386
              )
              
              (119,467,655
              )
              
              -Cash
                  flows provided by financing activities
              
              
              231,628,502
              
              
              136,820,482
              
              
              79,601Cash,
                  beginning of the period
              
              
              19,280,710
              
              
              205,030
              
              
              205,489Cash,
                  end of the period
              
              $
              29,589,815
              
              $
              19,280,710
              
              $
              205,030




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, the four residential apartment communities we acquired in June of
      2006,
      the Oakview Plaza in Omaha, Nebraska acquired on December 21, 2006 and the
      Gulf
      Coast industrial portfolio acquired on February 1, 2007, two hotels acquired
      in
      Houston, Texas on October 17, 2007, five multi family apartment communities
      acquired on November 16, 2007, substantially offset by the payment of a $1.6
      million acquisition fee related to our investment in a joint venture which
      acquired a sub-leasehold interest in a ground lease to an office building
      located at 1407 Broadway, New York, New York.





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, and the issuance of equity and debt securities and the
      placement of mortgage loans.




54




Cash
      used
      in investing activities of $228.0 million resulted primarily from the purchases
      of the Gulf Coast Industrial portfolio on February 1, 2007, the investment
      in
      the unconsolidated joint venture, two hotels acquired in Houston, Texas on
      October 17, 2007, five multi family apartment communities acquired on November
      16, 2007, as well as the purchase of an industrial building in Sarasota,
      Florida, the purchase of marketable securities of $27.7 million offset by the
      proceeds from the sale of Marketable securities of $17.0 million.




Cash
      provided by financing activities is primarily the proceeds from mortgage
      financing and notes payable ($148.2 million) and the proceeds from the issuance
      of common stock ($88.6 million), and the proceeds from the sale of general
      partnership units ($8.9 million).




Mortgages
      payable, totaling approximately $237.6 million at December 31, 2007, consists
      of
      the following:


Property
              
              Loan
                  Amount
              
              Interest
                  Rate
              
              Maturity
                  Date
              
              Amount
                  Due at maturitySt.
                  Augustine
              
              $
              27,051,571
              
              
              6.09
              %
              
              April
                  2016
              
              $
              23,747,523Southeastern
                  Michigan Multi Family Properties
              
              
              40,725,000
              
              
              5.96
              %
              
              July
                  2016
              
              
              38,138,605Oakview
                  Plaza
              
              
              27,500,000
              
              
              5.49
              %
              
              January
                  2017
              
              
              25,583,137Gulf
                  Coast Industrial Portfolio
              
              
              53,025,000
              
              
              5.83
              %
              
              February
                  2017
              
              
              49,556,985Houston
                  Extended Stay Hotels (Two Individual Loans)
              
              
              10,040,000
              
              
              LIBOR
                  + 1.75
              %
              
              October
                  2008
              
              
              10,040,000Camden
                  Multi Family Properties - (Five Individual Loans)
              
              
              79,268,800
              
              
              5.44
              %
              
              December
                  2014
              
              
              74,955,771Total
                  of eleven outstanding mortgage loans at December 31, 2007
              
              $
              237,610,371
              
              
              
              
              
              
              
              $
              222,022,022





LIBOR
      at
      December 31, 2007 was 4.60%. Monthly installments of interest only are required
      through the first 12 months for the St. Augustine loan, and monthly installments
      of principal and interest are required throughout the remainder of its stated
      term. Monthly installments of interest only are required through the first
      60
      months for the Southeastern Michigan multi-family properties, and through the
      first 48 months for the Camden Multi-Family properties’ loans, and monthly
      installments of principal and interest are required throughout the remainder
      of
      its stated term. The remaining loans are interest only until their maturity,
      when the amounts listed in the table above are 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
      and
      thereafter at December 31, 2007:


2008
              
              2009
              
              2010
              
              2011
              
              2012
              
              Thereafter
              
              TotalFixed
                  rate mortgages
              
              $
              10,353,360
              
              $
              338,052
              
              $
              359,526
              
              $
              1,586,957
              
              $
              2,781,012
              
              $
              222,191,464
              
              $
              237,610,371





New
      Accounting Pronouncements





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




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




55





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





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





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




**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 derivative
      transactions to date.




We
      also
      hold equity securities for general investment return purposes. We have incurred
      significant unrealized losses to date, and could be required to record material
      impairment charges related to these securities.




At
      December 31, 2007, we had mortgage debt totaling approximately $237.6 million
      as
      follows:


Property
              
              Loan
                  Amount
              
              Interest
                  Rate
              
              Maturity
                  Date
              
              Amount
                  Due at maturitySt.
                  Augustine
              
              $
              27,051,571
              
              
              6.09
              %
              
              April
                  2016
              
              $
              23,747,523Southeastern
                  Michigan Multi Family Properties
              
              
              40,725,000
              
              
              5.96
              %
              
              July
                  2016
              
              
              38,138,605Oakview
                  Plaza
              
              
              27,500,000
              
              
              5.49
              %
              
              January
                  2017
              
              
              25,583,137Gulf
                  Coast Industrial Portfolio
              
              
              53,025,000
              
              
              5.83
              %
              
              February
                  2017
              
              
              49,556,985Houston
                  Extended Stay Hotels (Two Individual Loans)
              
              
              10,040,000
              
              
              LIBOR
                  + 1.75
              %
              
              October
                  2008
              
              
              10,040,000Camden
                  Multi Family Properties - (Five Individual Loans)
              
              
              79,268,800
              
              
              5.44
              %
              
              December
                  2014
              
              
              74,955,771Total
                  of eleven outstanding mortgage loans at December 31, 2007
              
              $
              237,610,371
              
              
              
              
              
              
              
              $
              222,022,022




56





LIBOR
      at
      December 31, 2007 was 4.60%. Monthly installments of interest only are required
      through the first 12 months for the St. Augustine loan, and monthly installments
      of principal and interest are required throughout the remainder of its stated
      term. Monthly installments of interest only are required through the first
      60
      months for the Southeastern Michigan multi-family properties, and through the
      first 48 months for the Camden Multi-Family properties’ loans, and monthly
      installments of principal and interest are required throughout the remainder
      of
      its stated term. The remaining loans are interest only until their maturity,
      when the amounts listed in the table above are 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:


2008
              
              2009
              
              2010
              
              2011
              
              2012
              
              Thereafter
              
              TotalFixed
                  rate mortgages
              
              $
              10,353,360
              
              $
              338,052
              
              $
              359,526
              
              $
              1,586,957
              
              $
              2,781,012
              
              $
              222,191,464
              
              $
              237,610,371





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, 2007.




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, 2007, the Company has no off-balance sheet arrangements nor has it entered
      into any derivative instruments.





57





**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
            
            
            59Financial
                Statements:
            
            
            60Consolidated
                Balance Sheets as of December 31, 2007 and 2006
            
            
            60Consolidated
                Statements of Operations for the years ended December 31, 2007, 2006
                and
                2005
            
            
            61Consolidated
                Statements of Stockholders' Equity for the years ended December 31,
                2007,
                2006 and 2005
            
            
            62Consolidated
                Statements of Cash Flows for the years ended December 31, 2007, 2006
                and
                2005
            
            
            63Notes
                to Consolidated Financial Statements
            
            
            64Real
                Estate and Accumulated Depreciation  (Schedule III)
            
            
            94




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.




58





***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, 2007 and 2006, and the related consolidated statements of
      operations, stockholders’ equity and cash flows for each of the years in the
      three year period ended December 31, 2007. These financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our 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, 2007 and 2006, and the results of their operations and their cash flows
      for
      each of the years in the three year period ended December 31, 2007, in
      conformity with accounting principles generally accepted in the United States
      of
      America.





We
      have
      also audited the consolidated financial statement schedule, Schedule III -
      Real
      Estate and Accumulated Depreciation, as of December 31, 2007. 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
      28,
      2008


Edison,
      New Jersey




59


**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, 2007 and 2006**




**December
                31,**
              **2007**
            
            **December
                31,**
              **2006*****Assets***Investment
                property:Land
            
            $
            62,032,138
            
            $
            20,141,357Building
            
            
            240,221,044
            
            
            82,217,115Construction
                in Progress
            
            
            7,499,319
            
            
            -309,752,501
            
            
            102,358,472Less
                accumulated depreciation
            
            
            (5,455,550
            )
            
            (1,184,590
            )Net
                investment property
            
            
            304,296,951
            
            
            101,173,882Investment
                in unconsolidated real estate joint venture
            
            
            6,284,675
            
            
            -Cash
                and cash equivalents
            
            
            29,589,815
            
            
            19,280,710Marketable
                Securities
            
            
            10,752,910
            
            
            -Restricted
                escrows
            
            
            9,595,453
            
            
            6,912,578Deposit
                for purchase of real estate
            
            
            -
            
            
            8,435,000Due
                from escrow agent
            
            
            -
            
            
            163,949Tenant
                and other accounts receivable, net
            
            
            1,531,180
            
            
            316,232Acquired
                in-place lease intangibles (net of accumulated amortization of $2,646,629
                and $1,365,512, respectively)
            
            
            1,982,292
            
            
            1,801,678Acquired
                above market lease intangibles (net of accumulated amortization of
                $373,175 and $75,258, respectively)
            
            
            830,727
            
            
            601,987Deferred
                intangible leasing costs (net of accumulated amortization of $605,093
                and
                $119,807, respectively)
            
            
            1,153,712
            
            
            735,079Deferred
                leasing costs (net of accumulated amortization of $50,606 and $3,423,
                respectively)
            
            
            154,879
            
            
            23,359Deferred
                financing costs (net of accumulated amortization of $172,939 and
                $26,813,
                respectively)
            
            
            2,154,560
            
            
            691,777Prepaid
                expenses and other assets
            
            
            1,374,200
            
            
            571,986**Total
                Assets**
            
            $
            369,701,354
            
            $
            140,708,217***Liabilities
                and Stockholders' Equity***Mortgage
                payable
            
            $
            237,610,371
            
            $
            95,475,000Note
                payable
            
            
            5,825,286
            
            
            -Accounts
                payable and accrued expenses
            
            
            6,332,962
            
            
            1,980,052Tenant
                allowances and deposits payable
            
            
            943,854
            
            
            301,970Distributions
                payable
            
            
            2,463,361
            
            
            601,286Prepaid
                rental revenues
            
            
            1,066,724
            
            
            81,020Acquired
                below market lease intangibles (net of accumulated amortization of
                $1,874,843 and $953,435, respectively)
            
            
            2,391,883
            
            
            2,011,063256,634,441
            
            
            100,450,391Minority
                interest in partnership
            
            
            12,954,715
            
            
            4,282,122Commitments
                and contingenciesStockholders'
                equity:Preferred
                shares, 10,000,000 shares authorized, none outstanding
            
            
            -
            
            
            -Common
                stock, $.01 par value; 60,000,000 shares authorized, 13,606,609 and
                4,316,389 shares issued and outstanding, respectively
            
            
            136,066
            
            
            43,170Additional
                paid-in-capital
            
            
            120,297,590
            
            
            38,686,993Accumulated
                other comprehensive loss
            
            
            (1,199,278
            )
            
            -Accumulated
                distributions in addition to net loss
            
            
            (19,122,180
            )
            
            (2,754,459
            )Total
                stockholders' equity
            
            
            100,112,198
            
            
            35,975,704**Total
                Liabilities and Stockholders' Equity**
            
            $
            369,701,354
            
            $
            140,708,217




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




60


**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, 2007, 2006 and 2005**




**Year
                ended**
              **December
                31,**
              **2007**
            
            **Year
                ended**
              **December
                31,**
              **2006**
            
            **Year
                ended**
              **December
                31,**
              **2005**Revenues:Rental
                income
            
            $
            21,530,205
            
            $
            7,271,738
            
            $
            -Tenant
                recovery income
            
            
            3,729,450
            
            
            990,929
            
            
            -25,259,655
            
            
            8,262,667
            
            
            -Expenses:Property
                operating expenses
            
            
            9,579,830
            
            
            3,656,914
            
            
            -Real
                estate taxes
            
            
            2,739,866
            
            
            882,212
            
            
            -General
                and administrative costs
            
            
            3,710,363
            
            
            808,502
            
            
            117,571Depreciation
                and amortization
            
            
            6,163,437
            
            
            2,674,819
            
            
            -22,193,496
            
            
            8,022,447
            
            
            117,571Operating
                income (loss)
            
            
            3,066,159
            
            
            240,220
            
            
            (117,571
            )Other
                income
            
            
            1,162,040
            
            
            350,961
            
            
            -Interest
                income
            
            
            1,879,768
            
            
            459,916
            
            
            -Gain
                on sale of securities
            
            
            1,301,949
            
            
            -
            
            
            -Interest
                expense
            
            
            (9,384,383
            )
            
            (2,587,527
            )
            
            -Loss
                from investment in unconsolidated Joint Venture
            
            
            (7,267,949
            )
            
            -
            
            
            -Minority
                interest
            
            
            26
            
            
            86
            
            
            1,164Net
                loss applicable to common shares
            
            $
            (9,242,390
            )
            $
            (1,536,344
            )
            $
            (116,407
            )Net
                loss per common share, basic and diluted
            
            $
            (1.01
            )
            $
            (0.96
            )
            $
            (5.82
            )Weighted
                average number of common shares outstanding, basic and
                diluted
            
            
            9,195,369
            
            
            1,594,060
            
            
            20,000




The
      Company’s notes are an integral part of these 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**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**For
      the Years ended December 31, 2007, December 31, 2006 and December 31,
      2005**




**Accumulated****Accumulated**
            
            
            **Distribtions****Preferred
                  Shares**
            
            
            **Common
                  Shares**
            
            
            **Additional**
            
            
            **Other**
            
            
            **in 
Net**
            
            
            **Total****Preferred**
            
            
            
            
            
            **Common**
            
            
            
            
            
            **Paid-In**
            
            
            **Comprehensive**
            
            
            **Addition
                to**
            
            
            **Stockholders'****Shares**
            
            
            **Amount**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Loss**
            
            
            **Loss**
            
            
            **Equity****BALANCE,
                January 1, 2005**
            
            
            -
            
            $
            -
            
            
            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
            
            
            -
            
            
            -
            
            
            197,831**BALANCE,
                December 31, 2006**
            
            
            -
            
            
            -
            
            
            4,316,989
            
            
            43,170
            
            
            38,686,993
            
            
            -
            
            
            (2,754,459
            )
            
            35,975,704**Comprehensive
                loss:**Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,242,390
            )
            
            (9,242,390
            )Unrealized
                loss on available for sale securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,199,278
            )
            
            -
            
            
            (1,199,278
            )Total
                comprehensive loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,199,278
            )
            
            (9,242,390
            )
            
            (10,441,668
            )Distributions
                declared
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,125,331
            )
            
            (7,125,331
            )Proceeds
                from offering
            
            
            -
            
            
            -
            
            
            9,082,793
            
            
            90,828
            
            
            88,541,468
            
            
            -
            
            
            -
            
            
            88,632,296Selling
                commissions and dealer manager fees
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,130,796
            )
            
            -
            
            
            -
            
            
            (6,130,796
            )Other
                offering costs
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,762,855
            )
            
            -
            
            
            -
            
            
            (2,762,855
            )Proceeds
                from distribution reinvestment program
            
            
            -
            
            
            -
            
            
            206,826
            
            
            2,068
            
            
            1,962,780
            
            
            -
            
            
            -
            
            
            1,964,848**BALANCE,
                December 31, 2007**
            
            
            -
            
            $
            -
            
            
            13,606,608
            
            $
            136,066
            
            $
            120,297,590
            
            $
            (1,199,278
            )
            $
            (19,122,180
            )
            $
            100,112,198




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




62




**PART II.
      CONTINUED:**




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




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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
      the Years ended December 31, 2007, 2006 and December 31,
      2005**




**Year
                ended**
              **December
                31,**
              **2007**
            
            **Year
                ended**
              **December
                31,**
              **2006**
            
            **Year
                ended**
              **December
                31,**
              **2005****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (9,242,390
            )
            $
            (1,536,344
            )
            $
            (116,407
            )Loss
                allocated to minority interests
            
            
            (26
            )
            
            (86
            )
            
            (1,164
            )Adjustments
                to reconcile net loss to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            5,617,908
            
            
            1,186,076
            
            
            -Gain
                on sale of marketable securities
            
            
            (1,301,949
            )
            
            -
            
            
            -Amortization
                of deferred financing costs
            
            
            146,126
            
            
            26,813
            
            
            -Amortization
                of deferred leasing costs
            
            
            545,529
            
            
            123,230
            
            
            -Amortization
                of above and below-market lease intangibles
            
            
            (628,150
            )
            
            487,335
            
            
            -Net
                equity in loss from investment in unconcolidated joint
                venture
            
            
            7,267,949
            
            
            -
            
            
            -Changes
                in assets and liabilities:Increase
                in prepaid expenses and other assets
            
            
            (518,555
            )
            
            (573,470
            )
            
            -Increase
                in tenant and other accounts receivable
            
            
            (1,214,948
            )
            
            (316,232
            )
            
            -Increase
                in tenant allowance and security deposits payable
            
            
            641,884
            
            
            301,970
            
            
            -Increase
                in accounts payable and accrued expenses
            
            
            4,352,908
            
            
            1,942,541
            
            
            37,511Increase
                in prepaid rents
            
            
            985,703
            
            
            81,020
            
            
            -Net
                cash provided by operating activities
            
            
            6,651,989
            
            
            1,722,853
            
            
            (80,060
            )**CASH
                FLOWS USED IN INVESTING ACTIVITIES:**Purchase
                of investment property, net
            
            
            (201,085,650
            )
            
            (104,120,077
            )
            
            -Purchase
                of marketable securities
            
            
            (27,689,153
            )
            
            -
            
            
            -Proceeds
                from sale of marketable securities
            
            
            17,038,915
            
            
            -
            
            
            -Investment
                in unconcolidated joint venture
            
            
            (13,552,623
            )
            
            -
            
            
            -Funding
                of restricted escrows
            
            
            (2,682,875
            )
            
            (6,912,578
            )
            
            -Refundable
                deposit for investment in real estate
            
            
            -
            
            
            (8,435,000
            )
            
            -Net
                cash used in investing activities
            
            
            (227,971,386
            )
            
            (119,467,655
            )
            
            -**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                from mortgage financing
            
            
            142,333,800
            
            
            95,475,000
            
            
            -Proceeds
                from notes payable
            
            
            5,825,286
            
            
            -
            
            
            -Mortgage
                payments
            
            
            (198,429
            )
            
            -
            
            
            -Payment
                of loan fees and expenses
            
            
            (1,608,909
            )
            
            (718,590
            )
            
            -Proceeds
                from issuance of common stock
            
            
            88,632,296
            
            
            42,613,702
            
            
            -Proceeds
                from issuance of special general partnership units
            
            
            8,672,567
            
            
            4,281,369
            
            
            -Payment
                of offering costs
            
            
            (8,893,651
            )
            
            (4,055,404
            )
            
            (225,966
            )Decrease
                (increase) in amounts due from escrow agent
            
            
            163,949
            
            
            (163,949
            )
            
            -Decrease
                (increase) in amounts due to affiliates, net
            
            
            -
            
            
            (309,055
            )
            
            305,567Distributions
                paid
            
            
            (3,298,407
            )
            
            (302,591
            )
            
            -Net
                cash provided by financing activities
            
            
            231,628,502
            
            
            136,820,482
            
            
            79,601**Net
                change in cash and cash equivalents**
            
            
            10,309,105
            
            
            19,075,680
            
            
            (459
            )**Cash
                and cash equivalents, beginning of year**
            
            
            19,280,710
            
            
            205,030
            
            
            205,489**Cash
                and cash equivalents, end of year**
            
            $
            29,589,815
            
            $
            19,280,710
            
            $
            205,030**Supplemental
                disclosure of cash flow information:**Cash
                paid for interest
            
            $
            8,696,812
            
            $
            2,329,904
            
            $
            -Dividends
                declared
            
            $
            7,125,331
            
            $
            1,101,708
            
            $
            -Unrealized
                loss on available for sale securities
            
            $
            (1,199,278
            )
            $
            -
            
            $
            -Proceeds
                from shares issued in distribution reinvestment program
            
            $
            1,964,848
            
            $
            197,831
            
            $
            -




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




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, 2007, 2006 and 2005**


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




Lightstone
      Value Plus Real Estate Investment Trust, Inc., a Maryland corporation
      (“Lightstone REIT” and, together with the Operating Partnership (as defined
      below), the “Company”) was formed on June 8, 2004 and subsequently qualified as
      a real estate investment trust (“REIT”) during 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 and its Chief Executive Officer.




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 99.9% limited partnership interest in the Operating
      Partnership. 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, 2007, cumulative gross offering proceeds of approximately $131.5
      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.




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, 2007, 2006 and 2005 (continued)**
  Lightstone
        SLP, LLC, an affiliate of the Advisor, intends to periodically purchase special
        general partner interests (“SLP Units”) in the Operating Partnership at a cost
        of $100,000 per unit for each $1.0 million in offering subscriptions. Proceeds
        from the sale of the SLP Units will be used to fund organizational and offering
        costs incurred by the Company. As of December 31, 2007, offering costs of
        $13.2
        million have been substantially offset by $13.0 million of proceeds from
        the
        sale of SLP Units. Lightstone SLP, LLC has purchased an additional $0.2 million
        of SLP Units subsequent to December 31, 2007





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, 2007, the Advisor has not allocated any
      organizational costs to the Company. Advances for offering costs in excess
      of
      the 10% will only be reimbursed to the Advisor as additional offering proceeds
      are received by the Company. As of December 31, 2007, offering costs incurred
      were approximately $0.5 million in excess of 10%.





Through
      its Operating Partnership, the Company will seek to acquire and operate
      commercial, residential, and hospitality properties, principally in the
      United States. Primarily all such properties may be acquired and operated by
      the
      Company alone or jointly with another party. Since inception, the Company has
      completed the acquisition of the Belz Factory Outlet World in St. Augustine,
      Florida, four multi-family communities in Southeast Michigan, a retail power
      center and raw land in Omaha, Nebraska and a portfolio of industrial and 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). In addition, the Company has made an
      investment in a sub-leasehold interest in a ground lease to an office building
      located at 1407 Broadway in New York, NY, purchased a land parcel in Lake
      Jackson, TX on which it completed the development of a retail power center
      in
      the first quarter of 2008, an 8.5-acre parcel of undeveloped land, including
      development rights, which is intended to be used for further development of
      the
      adjacent Belz Outlet mall, five apartment communities located in Tampa, FL
      (one
      property), Charlotte, North Carolina (two properties) and Greensboro, North
      Carolina (two properties), and two hotels located in Houston, TX . All of the
      acquired properties and development activities 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 and its subsidiaries (over which Lightstone REIT exercises
      financial and operating control). As of December 31, 2007, 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.




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, 2007, 2006 and 2005 (continued)**


Investments
      in real estate partnerships where the Company has the ability to exercise
      significant influence, but does not exercise financial and operating control,
      are accounted for using the equity method. See further discussion in Note
      3.




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.





Marketable
      Securities





Our
      marketable securities consist of equity securities that are designated as
      available-for-sale and are recorded at fair value, in accordance with Statement
      of Financial Accounting Standards (FAS) No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities* .
      Unrealized holding gains or losses are reported as a component of accumulated
      other comprehensive income (loss). Realized gains or losses resulting from
      the
      sale of these securities are determined based on the specific identification
      of
      the securities sold. Marketable securities with original maturities greater
      than
      three months and less than one year are classified as short-term; otherwise
      they
      are classified as long-term. An impairment charge is recognized when the decline
      in the fair value of a security below the amortized cost basis is determined
      to
      be other-than-temporary. We consider various factors in determining whether
      to
      recognize an impairment charge, including the duration and severity of any
      decline in fair value below our amortized cost basis, any adverse changes in
      the
      financial condition of the issuers’ and our intent and ability to hold the
      investment for a period of time sufficient to allow for any anticipated recovery
      in market value. The Board has authorized the Company to from time to time
      to
      invest the Company’s available cash in marketable securities of real estate
      related companies. The Board has approved investments up to 30% of the Company’s
      total assets to be made at the Company’s discretion, subject to compliance with
      any REIT or other restrictions. At December 31, 2007, the Company has included
      $1.2 million of unrealized losses in accumulated other comprehensive loss.
      The
      following is a summary of the Company’s available for sale securities at
      December 31, 2007:


**Gross**
              
              **Fair****Unrealized**
              
              **Value****Cost**
              
              **Losses**Equity
                  securities
              
              $
              11,952,188
              
              $
              (1,199,278
              )
              $
              10,752,910


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.




66




**P** **ART 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, 2007, 2006 and 2005 (continued)**


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. The total
      allowance for doubtful accounts was approximately $0.2 million and $0 at
      December 31, 2007 and 2006, respectively.




Investment
      in Real Estate




*Accounting
      for Acquisitions*




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




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





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




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
      are
      not considered.




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, 2007, 2006 and 2005 (continued)**


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 No. 144, “Accounting
      for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). This
      statement requires that long-lived assets be reviewed for impairment whenever
      events or changes in circumstances indicate that recoverability of the asset
      is
      not assured.




The
      Company evaluates the long-lived assets, in accordance with SFAS No. 144 on
      a
      quarterly basis and will record an impairment charge when there is an indicator
      of impairment and the undiscounted projected cash flows are less than the
      carrying amount for a particular property. Management concluded no impairment
      adjustment was required through December 31, 2007. The estimated cash flows
      used
      for the impairment analysis and the determination of estimated fair value are
      based on the Company’s plans for the respective assets and the Company’s views
      of market and economic conditions. The estimates consider matters such as
      current and historical rental rates, occupancies for the respective Properties
      and comparable properties, and recent sales data for comparable properties.
      Changes in estimated future cash flows due to changes in the Company’s plans or
      views of market and economic conditions could result in recognition of
      impairment losses, which, under the applicable accounting guidance, could be
      substantial.





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.




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, 2007, 2006 and 2005 (continued)**


Income
      Taxes





The
      Company made an election in 2006 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”), beginning with its first taxable year, which ended
      December 31, 2005. Accordingly, no provision for income tax has been
      recorded.




We
      elected and qualified 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. To maintain its status 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 maintain 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. Through December
      31,
      2007, the Company has complied with the requirements for maintaining its REIT
      status.





The
      Company has net operating loss carryforwards for Federal income tax purposes
      for
      the years ended December 31, 2007 and 2006. The availability of such loss
      carryforwards 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 losses will
      be
      fully offset by a valuation allowance of the same amount.




Effective
      January 1, 2007, the Company adopted FIN No. 48, *Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
      109* .
      The
      adoption of FIN 48 did not have a material impact on the Company’s financial
      position, results of operation, or cash flows. As of December 31, 2007, the
      Company had no material uncertain income tax positions. The tax years 2004
      through 2007 remain open to examination by the major taxing jurisdictions to
      which the Company is subject.




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.





Through
      December 31, 2007, the Advisor has advanced approximately $13.0 million to
      the
      Company for offering costs, including commission and dealer manager fees, and
      the Company has directly funded an additional $0.2 million of offering costs
      pending further advances from the Advisor which has been subsequently repaid
      in
      January 2008. Based on gross proceeds of approximately $131.5 million from
      its public offering as of December 31, 2007, the Company’s responsibility for
      the reimbursement of advances for commissions and dealer manager fees was
      limited to approximately $10.6 million (or 8% of the gross offering proceeds),
      and its obligation for advances for organization and third-party offering costs
      was limited to approximately $2.7 million (or 2% of the gross offering
      proceeds).




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, 2007, 2006 and 2005 (continued)**


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 notes payable
      as
      of December 31, 2007 approximated the book value of approximately $243.4
      million. The fair value of the mortgage debt and notes payable 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 has 9,000 options issued and outstanding, and does
      not
      have any 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 due to the net operating loss.
      The 9,000 options are not included in the dilutive calculation as they are
      anti
      dilutive as a result of the net operating loss applicable to
      stockholders.




New
      Accounting Pronouncements




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




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




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, 2007, 2006 and 2005 (continued)**
  In
          June
          2007, the AICPA issued Statement of Position (“SOP”) 07-1, “Clarification of the
          Scope of the Audit and Accounting Guide, Investment Companies and Accounting
          by
          Parent Companies and Equity Method Investors for Investments in Investment
          Companies.” SOP 07-1 provides guidance for determining whether an entity is
          within the scope of the AICPA Audit and Accounting Guide, “Investment Companies”
(the “Guide”) and when companies that own or have significant stakes in
          investment companies should and should not retain, in their financial
          statements, the specialized industry accounting under the Guide. Management
          does
          not anticipate, the application of SOP 07-1 will have a material impact
          on our
          consolidated financial statements. This statement is effective for financial
          statements issued for fiscal years beginning after December 15, 2007, and
          interim periods within those fiscal years.





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





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





Reclassifications




Certain
      prior period amounts have been reclassified to conform to the current year
      presentation.





**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.




As
                  ofDecember
                  31,2007
              
              2006In-place
                  annualized rents
              
              $
              2.6
                  million
              
              $
              2.8
                  millionOccupancy
                  Percentage
              
              
              60.33
              %
              
              69.42
              %




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, 2007, 2006 and 2005 (continued)**
  At
          December 31, 2007, the Company has also temporarily leased 33% of the property.
          The Company is in the process of expanding and renovating its St. Augustine
          center. The Company expects to complete the expansion and renovation in
          the
          fourth quarter of 2008. The Company purchased the land adjacent to the
          existing
          center and the related development rights in the fourth quarter of 2007,
          and
          began the renovation and expansion. Total project costs to date at December
          31,
          2007 totaled approximately $5.0 million, including the purchase of the
          land and
          the development rights. Total project costs are expected to estimate
          approximately $35.2 million. The Company intends to fund the costs of this
          project using a portion of the proceeds from our
          offering.




***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
      as
      of December 31, 2007 and 2006 was as follows:




As
                of December 31,2007
            
            2006In-place
                annualized rents
            
            $
            7.9
                million
            
            $
            8.6
                millionOccupancy
                Percentage
            
            
            91.50
            %
            
            91.60
            %


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, 2007, 2006 and 2005 (continued)**


***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.





The
      property was purchased subject to a commitment to acquire a 2.1 acre parcel
      of
      land (the “Option Land”) located immediately adjacent to the property. The
      unimproved Option Land was subsequently acquired in July of 2007 by a subsidiary
      of the Operating Partnership from Oakview for a fixed contract price of
      $650,000. The acquisition price for the property, exclusive of the Option Land,
      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), as well as the acquisition of the
      Option Land. The Property was independently appraised at $38.0 million.





***Manhattan
      Office Building***




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 the Sponsor (the “Joint Venture”). 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, and as of the acquisition date, was 87.6%
      occupied (approximately 300 tenants) and leased by tenants generally
      engaged in the female apparel business. The ground lease, dated as of January
      14, 1954, provides for multiple renewal rights, with the last renewal period
      expiring on December 31, 2048. The Sublease Interest runs concurrently with
      this
      ground lease.





The
      acquisition price for the Sublease Interest was $122 million, exclusive of
      acquisition-related costs incurred by the Joint Venture ($3.5 million), pro
      rated operating expenses paid at closing ($4.1 million), financing-related
      costs
      ($1.9 million) and construction, insurance and tax reserves ($1.0 million).
      The
      acquisition was funded through a combination of $26.5 million of capital and
      a
      $106.0 million advance on a $127.3 million variable rate mortgage loan funded
      by
      Lehman Brothers Holding, Inc. As an inducement to Lender to make the loan,
      Owner
      has agreed to provide Lender with a 35% net profit interest in the project,
      which is contingent upon a capital transaction, as defined as any transaction
      involving the sale, assignment, transfer, liquidation, condemnation or
      settlement in lieu thereof, disposition, financing, refinancing or any other
      conversion to cash of all or any portion of the property or equity or membership
      interests in Borrower, directly, other than the leasing of space for occupancy
      and/or any other transaction with respect to the Property or the direct or
      indirect ownership interests in Borrower outside the ordinary course of
      business.   To date, the lender did not share in any net profits of the
      project. The lender also has a conversion option, which if upon exercised,
      would
      grant the lender a special membership interest in the Joint Venture whereby
      the
      lender will receive 35% of all distributions resulting from a capital
      transaction after the return of the member’s equity investment plus the member’s
      allowed return’s as specified in the “Net Profits Agreement”. 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 acquisition and legal fees were charged to expense by the
      Company during the first quarter of 2007, and are included in general and
      administrative expenses for the year ended December 31, 2007.




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, 2007, 2006 and 2005 (continued)**





The
      Company accounted for the investment in this unconsolidated joint venture under
      the equity method of accounting as the Company exercises significant influence,
      but does not control these entities. Initial equity from our co-venturer totaled
      $13.5 million (representing a 51% ownership interest). Our initial capital
      investment, funded with proceeds from our common stock offering, was $13.0
      million (representing a 49% ownership interest). This $13.0 million investment
      was recorded initially at cost and will be subsequently adjusted for cash
      contributions and distributions, and the Company’s share of earnings and losses.
      The Company contributed an additional $0.6 million in 2007. 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. For the year ended December 31, 2007, the Company’s results
      included a $7.3 million loss from investment in this unconsolidated joint
      venture, resulting in a net investment balance of approximately $6.3 million
      as
      of December 31, 2007. 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 $16.4 million are
      available to fund these improvements.





In-place
      rents, net of rent concessions, and average occupancy for the property at
      December 31, 2007 was as follows:




As
                of
              December
                31,
              2007In-place
                annualized rents
            
            $
            36.4
                millionOccupancy
                Percentage
            
            
            89.7
            %




The
      following table represents the condensed income statement for the unconsolidated
      joint venture for the period from January 4, 2007(date of inception) through
      December 31, 2007 (information derived from audited financial statements as
      of
      December 31, 2007):


**For
                  period from**
                **January
                  4, 2007**
                **(date
                  of inception)**
                **through**
                **December
                  31, 2007****Total
                  revenue**
              
              $
              37,447,442**Total
                  property expenses**
              
              
              26,701,480**Depreciation
                  and amortization**
              
              
              16,214,919**Interest
                  expense**
              
              
              9,490,576**Operating
                  loss**
              
              
              (14,959,533
              )**Other
                  income**
              
              
              126,985**Net
                  loss**
              
              
              (14,832,548
              )**Company's share
                  of net operating loss (49%)**
              
              $
              (7,267,949
              )




74


**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, 2007, 2006 and 2005 (continued)**
 The
      following table represents the condensed balance sheet for the unconsolidated
      joint venture as of December 31, 2007 (information derived from audited
      financial statements as of December 31, 2007,):


**As
                  of**
                **December
                  31,****2007**Real
                  estate, at cost (net):
              
              $
              120,370,913Cash
                  and restricted cash
              
              
              11,458,097Other
                  assets
              
              
              9,475,857Total
                  assets
              
              $
              141,304,867Mortgage
                  note payable
              
              
              110,847,201Other
                  liabilities
              
              
              17,640,362Members'
                  capital
              
              
              12,817,304Total
                  liabilities and members' capital
              
              $
              141,304,86749%
                  Investment in Joint Venture
              
              $
              6,284,675





***Gulf
      Coast Industrial Portfolio***




On
      February 1, 2007, the Company, through wholly owned subsidiaries of the
      Operating Partnership, acquired a portfolio of industrial and 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 the acquisition, 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, 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.





In-place
      rents, net of rent concessions, and occupancy for the properties at December
      31,
      2007 were as follows:


As
                  of
                December
                  31,
                2007In-place
                  annualized rents
              
              $
              6.3
                  millionOccupancy
                  Percentage
              
              
              94.9
              %




75


**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, 2007, 2006 and 2005 (continued)**


***Brazos
      Crossing Mall***





On
      June
      29, 2007, a subsidiary of the Operating Partnership acquired a 6.0 acre land
      parcel in Lake Jackson, Texas for immediate development of a 61,287 square
      foot
      power center. The land was purchased for $1.65 million cash and was funded
      100%
      from the proceeds of the Company’s offering. Upon completion in March 2008, the
      center opened and is occupied by three triple net tenants: Pet Smart, Office
      Depot and Best Buy.





The
      purchase and sale agreement (the “Land Agreement”) for this transaction was
      negotiated between Lake Jackson Crossing Limited Partnership (formerly an
      affiliate of the Sponsor) and Starplex Operating, LP, an unaffiliated entity
      (the "Land Seller"). Prior to the closing, a 99% limited partnership interest
      in
      the Lake Jackson Limited Partnership was assigned to the Operating Partnership
      and the membership interests in Brazos Crossing LLC (the 1% general partner
      of
      the Lake Jackson Limited Partnership) were assigned to the Company.





The
      land
      parcel was acquired at what represents a $2.1 million discount from the
      expressed $3.75 million purchase price, with such difference being subsidized
      and funded by a retail affiliate of the Sponsor. The sale of the land parcel
      was
      a condition of the Seller’s agreement to execute a new movie theater lease at
      the Sponsor affiliate’s nearby retail mall. The Company owns a 100% fee simple
      interest in the land parcel and retail power center. The Sponsor’s affiliate
      will receive no future benefit or ownership interests from this
      transaction.





The
      Company entered into a construction loan in December 2007 to fund the
      development of the power retail center at its Lake Jackson, Texas Location.
      The
      loan requires monthly installments of interest only through the first 12 months
      and bears interest at 150 basis points (1.5%) in excess of LIBOR. For the second
      twelve months, principal payments shall be made in monthly installments in
      amounts equal to one-twelfth of the principal component of an annual
      amortization of the principal of the loan on the basis of an assumed interest
      rate of 6.82% and a thirty year term. The loan is secured by acquired real
      estate and is non-recourse to the Company. The loan allows the Company to draw
      up to $8.2 million, and then will require monthly installments of interest
      only
      through the first 12 months and bears interest at 150 basis points (1.5%) in
      excess of LIBOR. For the second twelve months, principal payments shall be
      made
      in monthly installments in amounts equal to one-twelfth of the principal
      component of an annual amortization of the principal of the loan on the basis
      of
      an assumed interest rate of 6.82% and a thirty year term. The loan is secured
      by
      acquired real estate and is non-recourse to the Company. The loan is guaranteed
      by the Company. The balance at December 31, 2007 was $5.8 million. The loan
      matures on December 4, 2009.





The
      total
      cost of the project, inclusive of project construction, tenant incentives,
      leasing costs, and land is estimated at $10.2 million. Because the debt
      financing for the acquisition may exceed certain leverage limitations of the
      REIT, the Board, including all of its independent directors has approved any
      leverage exceptions as required by the Company’s Articles of
      Incorporation.







Three
      tenants will occupy 100% of the property’s rentable square footage. The
      following table sets forth the name, business type, primary lease terms and
      certain other information with respect to each of these major
      tenants:





**Name
                of Tenant**
            
            **BusinessType**
            
            **Square
                Feet Leased**
            
            **Percentage
                of Leasable Space**
            
            **Annual
                Rent Payments**
            
            **Lease
                Term from Commencement**
            
            **Party
                with Renewal Rights**Best
                Buy
            
            
            Electronics
                Retailer
            
            
            20,200
            
            
            32.90
            %
            $
            260,000
            
            
            10
                years
            
            
            TenantOffice
                Depot
            
            
            Office
                Supplies Retailer
            
            
            21,000
            
            
            34.30
            %
            $
            277,200
            
            
            10
                years
            
            
            TenantPetsmart
            
            
            Pet
                Supply Retailer
            
            
            20,087
            
            
            32.80
            %
            $
            231,001
            
            
            10
                years
            
            
            Tenant


76




**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, 2007, 2006 and 2005 (continued)**





***Houston
      Extended Stay Hotels***





On
      October 17, 2007, the Company, through TLG Hotel Acquisitions LLC, a wholly
      owned subsidiary of our operating partnership (together with such subsidiary,
      the “Houston Partnership”), acquired two hotels located in Houston, TX (the
“Katy Hotel”) and Sugar Land, TX (the “Sugar Land Hotel” and together with the
      Katy Hotel, the “Hotels”) from Morning View Hotels - Katy, LP, Morning View
      Hotels - Sugar Land, LP and Point of Southwest Gardens, Ltd ., pursuant to
      an
      Asset Purchase and Sale Agreement. The seller is not an affiliate of the Company
      or its subsidiaries.





Prior
      to
      the acquisition of the Hotels, our board of directors expanded the Company’s
      eligible investments to include the acquisition, holding and disposition of
      hotels (primarily extended stay hotels). The reasons for such change include
      the
      expertise of our sponsor who acquired the Extended Stay Hotels group of
      companies (“ESH”) and control of its management company (HVM L.L.C.) which
      operates 684 extended stay hotels. The ability to draw upon their expertise,
      the
      intense competition in the real estate market for all types of assets and the
      ability to better diversify the Company’s portfolio, caused our board of
      directors to review the Company’s investment objectives and expand them to
      include lodging facilities.





The
      Hotels were recently remodeled by the previous owner; however the Company
      intends to make a $2.8 million dollar investment in capital expenditures in
      2008
      to convert the Hotels to Extended Stay Deluxe (“ESD”) brand properties. The ESD
      brand is under license from an affiliate within the Extended Stay Hotels group
      of companies. The Company expects these additional renovations to be conducted
      over a 1-year period and will include implementing ESD’s national reservation
      system, new carpeting, new paint, new signage, exterior façade improvements,
      re-striping parking lot, guest room upgrades, landscaping and constructing
      pools.





The
      acquisition price for the Hotels was $16 million inclusive of closing costs.
      In
      connection with the transaction, the Company’s advisor received an acquisition
      fee equal to 2.75% of the contract price ($15.2 million), or approximately
      $0.4
      million.





The
      acquisition was funded through a combination of $6.0 million in offering
      proceeds and approximately $10 million in loan proceeds from a floating rate
      mortgage loan secured by the Hotels.





The
      Company has established a taxable REIT subsidiary, LVP Acquisitions Corp. (“LVP
      Corp”), which has entered into operating lease agreements with each of the Katy
      Hotel and the Sugar Land Hotel, respectively, and LVP Corp. has entered into
      management agreements with HVM L.L.C., a controlled affiliate of our sponsor,
      for the management of the hotels.





In
      connection with the acquisition of the Hotels, the Houston Partnership along
      with ESD #5051 - Houston - Sugar Land, LLC and ESD #5050 - Houston - Katy
      Freeway, LLC, its wholly owned subsidiaries (the “Houston Borrowers”) secured a
      mortgage loan from Bank of America, N.A. in the principal amount of $12.85
      million, which includes up to an additional $2.8 million of renovation proceeds
      which will be borrowed as the renovation proceeds.





The
      mortgage loan has a term of one year with the option of a 6-month term
      extension, bears interest on a daily basis expressed as a floating rate equal
      to
      the lesser of (i) the maximum non-usurious rate of interest allowed by
      applicable law or (ii) the British Bankers Association Libor Daily Floating
      Rate
      plus one hundred seventy-five basis points (1.75%) per annum rate and requires
      monthly installments of interest only through the first 12 months. The mortgage
      loan will mature on October 16, 2008, subject to the 6-month extension option
      described above, at which time payment of the entire principal balance, together
      with all accrued and unpaid interest and all other amounts payable thereunder
      will be due. The mortgage loan will be secured by the Hotels and will be
      non-recourse to the Registrant.




77


**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, 2007, 2006 and 2005 (continued)**


In
      connection with the Loan, the Company guaranteed the complete performance of
      the
      Houston Borrowers’ obligations with respect to the renovations and certain other
      customary guarantees.





***Camden
      Properties***





On
      November 16, 2007, the Company through wholly owned subsidiaries of the
      partnership acquired five apartment communities (“Camden Properties”) located in
      Tampa, Florida (one property), Charlotte, North Carolina (two properties) and
      Greensboro, North Carolina (two properties) from Camden Operating, L.P. (the
      “Seller”). The Seller is not affiliated with the Company or its subsidiaries.





The
      Properties, built between 1980 and 1987, are comprised of 1,576 apartment units,
      in the aggregate, contain a total of 1,124,249 net rentable square feet, and
      were 94% occupied at acquisition.




The
      aggregate acquisition price for the Camden Properties was approximately $99.3
      million, including acquisition-related transaction costs. Approximately $20.0
      million of the acquisition cost was funded with offering proceeds from the
      sale
      of the Company’s common stock and approximately $79.3 million was funded with
      five substantially similar fixed rate loans with Fannie Mae secured by each
      of
      the Camden Properties.





In
      connection with the acquisition of the properties, our Advisor received an
      acquisition fee of 2.75% of the gross contract price for the Camden Properties
      or approximately $2.65 million.





On
      November 16, 2007, in connection with the acquisition of the Camden Properties,
      the Company through its wholly owned subsidiaries obtained from Fannie Mae
      five
      substantially similar fixed rate mortgages aggregating $79.3 million (the
“Loans”). The loans have a 30 year amortization period, mature in 7 years, and
      bear interest at a fixed rate of 5.44% per annum. The loans require monthly
      installments of interest only through the first three years and monthly
      installments of principal and interest throughout the remainder of their stated
      terms. The Loans will mature on December 1, 2014, at which time a balance of
      approximately $75.0 million will be due. Although the loans were allocated
      among
      the Camden Properties, the aggregate loan amount is secured by all of the
      Properties.





In-place
      rents, net of rent concessions, and occupancy for the properties at December
      31,
      2007 were as follows:





As
                of
              December
                31,
              2007In-place
                annualized rents
            
            $
            10.5
                millionOccupancy
                Percentage
            
            
            86.9
            %




***Sarasota,
      Florida***





On
      March
      1, 2007, the Company entered into an option agreement to participate in a
      joint-venture with its Sponsor (the “JV Option” with respect to the potential
      joint venture, the “Joint Venture”) for the purchase of a property located at
      2150 Whitfield Avenue, Sarasota, Florida (the “Sarasota Property”). On November
      15, 2007, the Company exercised the JV Option and, through a wholly-owned
      subsidiary of the Company’s operating partnership, entered into the Joint
      Venture and acquired the Sarasota Property.




78




**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, 2007, 2006 and 2005 (continued)**





In
      July,
      2007, CAD Funding, LLC (“CAD”), an affiliate of Park Avenue Funding, LLC, had
      the highest bid on the Sarasota Property in a foreclosure action. Park Avenue
      Funding, LLC, is a real estate lending company founded in 2004 and an affiliate
      of the Company’s Advisor and Sponsor. CAD initiated the foreclosure action
      following the default of an unaffiliated third party on a loan made to the
      third
      party by CAD, for which the Sarasota Property served as security. Prior to
      the
      entry of the foreclosure judgment, the Sponsor expressed an interest in bidding
      at the foreclosure sale in anticipation that the Registrant would exercise
      the
      JV Option. On August 6, 2007, the Sarasota Property was indirectly acquired
      by
      the Sponsor. The Sarasota Property was contributed to the Joint Venture prior
      to
      the Registrant’s exercise of the JV Option. The contribution to the Joint
      Venture by the Company was $13.1 million of offering proceeds used to acquire
      the Sarasota Property. The property was independently appraised in May of 2006
      for $17.4 million. At December 31, 2007, the Company holds a 100% interest
      in
      the Joint Venture, and the Sponsor remains a member in the joint
      venture  The
      Company now owns 100% of the joint venture and the joint venture is fully
      consolidated in the Company’s financial statements for the year ended December
      31, 2007.





In
      evaluating the Sarasota Property as a potential acquisition, the Company has
      considered a variety of factors, and determined that the acquisition cost was
      at
      a substantial discount to current market value. The Sarasota Property is subject
      to competition from similar properties within its market area, and economic
      performance could be affected by changes in local economic conditions. The
      Sarasota Property currently does not possess a tenant and is experiencing
      negative cash flows; however the Venture is currently negotiating with
      prospective tenants. The Company evaluated the asset in accordance with SFAS
      144, and determined that its valuation exceeded its carrying value at December
      31, 2007.




As
      of
      December 31, 2007, the approximate fixed future minimum rentals from the
      Company’s commercial real estate properties, excluding Brazos Crossing which was
      not yet open at December 31, 2007, are as follows:







Beyond
            
            TotalBuilding
            
            2008
            
            2009
            
            2010
            
            2011
            
            2012
            
            2012
            
            Min.
                RentSt
                Augustine
            
            
            1,848,478
            
            
            1,319,168
            
            
            659,593
            
            
            242,863
            
            
            24,516
            
            
            9,842
            
            
            4,104,460Oakview
                Plaza
            
            
            2,543,280
            
            
            2,432,693
            
            
            1,929,906
            
            
            1,592,466
            
            
            1,592,466
            
            
            1,633,716
            
            
            11,724,527Gulf
                Industrial Portfolio
            
            
            5,833,708
            
            
            4,478,402
            
            
            2,458,461
            
            
            1,483,635
            
            
            433,669
            
            
            28,274
            
            
            14,716,149Total
            
            
            10,225,466
            
            
            8,230,263
            
            
            5,047,960
            
            
            3,318,964
            
            
            2,050,651
            
            
            1,671,832
            
            
            30,545,136




The
      following unaudited pro forma combined condensed statements of operations set
      forth the consolidated results of operations for the year ended December 31,
      2007 and December 31, 2006, respectively, as if the above described acquisitions
      had occurred at January 1, 2006. 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 year ended December 31, 2007 and
      December 31, 2006, respectively, or for any future period.


Year
                  endedDecember
                  31,2007
              
              2006Real
                  estate revenues
              
              $
              39,256,808
              
              $
              39,825,189Equty
                  in loss from investment in unconsolidated joint venture
              
              
              (7,267,949
              )
              
              (8,548,062
              )Net
                  loss
              
              
              (9,993,332
              )
              
              (16,380,741
              )Basic
                  and diluted loss per share
              
              $
              (0.71
              )
              $
              (2.97
              )




79


**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, 2007, 2006 and 2005 (continued)**


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




Mortgages
      payable, totaling approximately $237.6 million at December 31, 2007, consists
      of
      the following:





Property
            
            Loan
                Amount
            
            Interest
                Rate
            
            Maturity
                Date
            
            Amounts
                due at MaturitySt.
                Augustine
            
            $
            27,051,571
            
            
            6.09
            %
            
            April
                2016
            
            $
            23,747,523Southeastern
                Michigan Multi Family Properties
            
            
            40,725,000
            
            
            5.96
            %
            
            July
                2016
            
            
            38,138,605Oakview
                Plaza
            
            
            27,500,000
            
            
            5.49
            %
            
            January
                2017
            
            
            25,583,137Gulf
                Coast Industrial Portfolio
            
            
            53,025,000
            
            
            5.83
            %
            
            February
                2017
            
            
            49,556,985Houston
                Extended Stay Hotels (Two Individual Loans)
            
            
            10,040,000
            
            
            LIBOR
                + 1.75
            %
            
            October
                2008
            
            
            10,040,000Camden
                Multi Family Properties - (Five Individual Loans)
            
            
            79,268,800
            
            
            5.44
            %
            
            December
                2014
            
            
            74,955,771Total
                of eleven outstanding mortgage loans at December 31, 2007
            
            $
            237,610,371
            
            
            
            
            
            
            
            $
            222,022,021





LIBOR
      at
      December 31, 2007 was 4.60%. Monthly installments of interest only are required
      through the first 12 months for the St. Augustine loan, and monthly installments
      of principal and interest are required throughout the remainder of its stated
      term. Monthly installments of interest only are required through the first
      60
      months for the Southeastern Michigan multi-family properties, and through the
      first 48 months for the Camden Multi-Family properties’ loans, and monthly
      installments of principal and interest are required throughout the remainder
      of
      its stated term. The remaining loans are interest only until their maturity,
      when the amounts listed in the table above are 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
      and
      thereafter at December 31, 2007:





2008
            
            2009
            
            2010
            
            2011
            
            2012
            
            Thereafter
            
            TotalFixed
                rate mortgages
            
            $
            10,353,360
            
            $
            338,052
            
            $
            359,526
            
            $
            1,586,957
            
            $
            2,781,012
            
            $
            222,191,464
            
            $
            237,610,371




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 (“Wachovia”) 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 voluntary 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 $9.6 million were
      held in restricted escrow accounts at December 31, 2007. 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.





In
      connection with the acquisition of the Hotels, the Houston Partnership along
      with ESD #5051 - Houston - Sugar Land, LLC and ESD #5050 - Houston - Katy
      Freeway, LLC, its wholly owned subsidiaries (the “Houston Borrowers”) secured a
      mortgage loan from Bank of America, N.A. in the principal amount of $12.85
      million, which includes up to an additional $2.8 million of renovation proceeds
      which will be borrowed as the renovation proceeds.




80


**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, 2007, 2006 and 2005 (continued)**


The
      mortgage loan has a term of one year with the option of a 6-month term
      extension, bears interest on a daily basis expressed as a floating rate equal
      to
      the lesser of (i) the maximum non-usurious rate of interest allowed by
      applicable law or (ii) the British Bankers Association Libor Daily Floating
      Rate
      plus one hundred seventy-five basis points (1.75%) per annum rate and requires
      monthly installments of interest only through the first 12 months. The mortgage
      loan will mature on October 16, 2008, subject to the 6-month extension option
      described above, at which time payment of the entire principal balance, together
      with all accrued and unpaid interest and all other amounts payable thereunder
      will be due. The mortgage loan is secured by the Hotels and will be non-recourse
      to the Company. The Company intends to extend, repay or refinance this loan
      upon
      its maturity in October of 2008.





On
      November 16, 2007, in connection with the acquisition of the Camden Properties,
      the Company through its wholly owned subsidiaries obtained from Fannie Mae
      five
      substantially similar fixed rate mortgages aggregating $79.3 million (the
“Loans”). The loans have a 30 year amortization period, mature in 7 years, and
      bear interest at a fixed rate of 5.44% per annum. The loans require monthly
      installments of interest only through the first three years and monthly
      installments of principal and interest throughout the remainder of their stated
      terms. The Loans will mature on December 1, 2014, at which time a balance of
      approximately $75.0 million will be due. Although the loans were allocated
      among
      the Camden Properties, the aggregate loan amount is secured by all of the
      Properties.





The
      Company is required to maintain minimum debt service coverage ratios as defined
      in the loan documents for the St. Augustine, Houston extended stay hotels and
      Southeastern Michigan multi family properties. The Company was in compliance
      with its financial covenants at December 31, 2007.





**5.**  ***Notes
      Payable***  ****




On
      December 5, 2007, the Company entered into a construction loan to fund the
      development of the power retail center at its Lake Jackson, Texas Location.
      The
      loan allows the Company to draw up to $8.2 million, and then will require
      monthly installments of interest only through the first 12 months and bears
      interest at 150 basis points (1.5%) in excess of LIBOR. For the second twelve
      months, principal payments shall be made in monthly installments in amounts
      equal to one-twelfth of the principal component of an annual amortization of
      the
      principal of the loan on the basis of an assumed interest rate of 6.82% and
      a
      thirty year term. The loan is secured by acquired real estate and is
      non-recourse to the Company. The loan is guaranteed by the Company. The balance
      at December 31, 2007 was $5.8 million. The loan matures on December 4,
      2009.




81


**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, 2007, 2006 and 2005 (continued)**


**6.**  ***Intangible
      Assets***





At
      December 31, 2007, the Company had intangible assets relating to above-market
      leases from property acquisitions, intangible assets related to leases in place
      at the time of acquisition, intangible assets related to leasing costs, and
      intangible liabilities relating to below-market leases from property
      acquisitions.




In
      accordance with SFAS No. 141, during the fourth quarter of 2006, 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.







The
      following table sets forth the Company’s intangible assets as of December 31,
      2007 and December 31, 2006:







At
                December 31, 2007
            
            At
                December 31, 2006Cost
            
            Accumulated
                Amortization
            
            Net
            
            Cost
            
            Accumulated
                Amortization
            
            NetAcquired
                in-place lease intangibles
            
            **$**
            4,628,921
            
            **$**
            (2,646,629
            )
            **$**
            1,982,292
            
            $
            3,167,190
            
            $
            (1,365,512
            )
            $
            1,801,678Acquired
                above market lease intangibles
            
            
            1,203,902
            
            
            (373,175
            )
            
            830,727
            
            
            677,245
            
            
            (75,258
            )
            
            601,987Acquired
                leasing costs
            
            
            1,758,805
            
            
            (605,093
            )
            
            1,153,712
            
            
            854,886
            
            
            (119,807
            )
            
            735,079Acquired
                below market lease intangibles
            
            
            4,266,726
            
            
            (1,874,843
            )
            
            2,391,883
            
            
            2,964,498
            
            
            (953,435
            )
            
            2,011,063








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, 2007:





Amortization
                of:
            
            2008
            
            2009
            
            2010
            
            2011
            
            2012
            
            Thereafter
            
            TotalAcquired
                above market lease value
            
            $
            386,759
            
            $
            206,755
            
            $
            97,974
            
            $
            53,943
            
            $
            23,379
            
            $
            61,917
            
            $
            830,727Acquired
                below market lease value
            
            
            (1,116,755
            )
            
            (578,214
            )
            
            (282,515
            )
            
            (137,611
            )
            
            (94,455
            )
            
            (182,333
            )
            
            (2,391,883
            )Projected
                future net rental income decrease
            
            $
            (729,997
            )
            $
            (371,458
            )
            $
            (184,541
            )
            $
            (83,668
            )
            $
            (71,076
            )
            $
            (120,416
            )
            $
            (1,561,156
            )Acquired
                in-place lease value
            
            $
            812,091
            
            $
            520,951
            
            $
            228,538
            
            $
            113,896
            
            $
            72,985
            
            $
            233,831
            
            $
            1,982,292





Actual
      total amortization expense included in depreciation and amortization expense
      in
      our statement of operations was $1.9 million, $1.5 million and $0 for the years
      ended December 31, 2007, 2006 and 2005. Amortization of acquired above and
      below
      market lease values is included in total revenues on our statement of operations
      was $0.6 million, $0.9 million and $0 for the years ended December 31, 2007,
      2006 and 2005.




82


**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, 2007, 2006 and 2005 (continued)**




**7** ***.
      Distributions Payable***




On
      September 24, 2007, the Company’s Board of Directors declared a dividend for the
      three-month period ending December 31, 2007. 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 in the
      amount of $2.2 million was paid in full in January 2008 using a combination
      of
      cash ($1.3 million), and pursuant to the Company’s Distribution Reinvestment
      Program, shares of the Company’s stock at a discounted price of $9.50 per share
      ($0.9 million). 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. On September 24, 2007, the Company’s Board of Directors also declared
      dividends for its special general partner interests. The distribution for the
      fourth quarter 2007 in the amount of $0.2 million was included in distributions
      payable at December 31, 2007 and was paid in January 2008.





***8.
      Deposit for Real Estate Purchase***




At
      December 31, 2006, the Company recorded $8.4 million as a refundable deposit
      for
      two real estate transactions that subsequently closed in the first quarter.
      Deposits for real estate were returned to the Company upon the conclusion of
      its
      due diligence where such properties are deemed infeasible for acquisition.
      At
      December 31, 2007, there were no refundable deposits recorded.





***9.
      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, 2007 and 2006, the Lightstone REIT had no outstanding
      preferred shares.





***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.




83


**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, 2007, 2006 and 2005 (continued)**


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
      13.6 million and 4.3 million shares of common stock outstanding as of
      December 31, 2007 and 2006, 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.







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.
      The
      Company granted 9,000 options to its independent directors on the date of the
      annual stockholder’s meeting on July 9, 2007 under the Lightstone REIT’s current
      plan. The expense required to be recorded by the Company was
      insignificant.




84




**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, 2007, 2006 and 2005 (continued)**




Effective
      January 1, 2006, the Company adopted the provisions of, and accounts for
      stock-based compensation in accordance with, FAS No. 123(R), *Share-Based
      Payment* (FAS
      123(R)). Under the fair value recognition provisions of this statement,
      stock-based compensation cost is measured at the grant date based on the fair
      value of the award and is recognized as expense over the requisite service
      period, which is the vesting period. The Company has applied the modified
      prospective method of adoption, under which prior periods are not restated
      for
      comparative purposes. Under the modified prospective method, FAS 123(R) applies
      to new awards and to awards that were outstanding as of December 31, 2005
      that are subsequently modified, repurchased or cancelled. There were no options
      grants prior to 2007, and as such, there was no compensation expense recognized
      during the years ended December 31, 2006 and 2005. The compensation expense
      included in general and administrative expenses for the year ended December
      31,
      2007, was insignificant. Stock-based compensation is classified within general
      and administrative expense in the consolidated statements of operations. As
      stock-based compensation expense recognized in the consolidated statements
      of
      operations is based on awards ultimately expected to vest, the amount of expense
      has been reduced for estimated forfeitures, which is an immaterial adjustment.
      FAS 123(R) requires forfeitures to be estimated at the time of grant and
      revised, if necessary, in subsequent periods if actual forfeitures differ from
      those estimates. Forfeitures are estimated based on historical experience.





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
      2007, 2006 and for the quarter ending March 31, 2008. 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, 2007 and 2006 were
      $7.1
      million and $1.1 million, respectively. The dividend declared for the quarter
      ending March 31, 2008 will be paid in cash, in April 2008, to stockholders
      of
      record as of March 31, 2008.





**10.**  ***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.




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.




85


**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, 2007, 2006 and 2005 (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 offset such costs.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 the 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%.




**Fees**
            
            **Amount**Property
                Management -*Residential/Retail/*
              *Hospitality*
            
            The
                Property Manager will be paid a monthly management fee of up to 5%
                of the
                gross revenues from residential, hospitality and retail properties.
                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 preceeding
                quarter.




86


**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, 2007, 2006 and 2005 (continued)**


**Fees**
            
            **Amount**Reimbursement
                of
              Other
                expenses
            
            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 property
                operating expenses, depreciation and amortization expenses, 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.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.




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. Distributions of $0.7 million were declared and
      $0.5
      million were paid during the year ended December 31, 2007. The distribution
      for
      the fourth quarter 2007 in the amount of $0.2 million was paid in January 2008.
      Such distributions, paid current at a 7% annualized rate of return to Lightstone
      SLP, LLC through December 31, 2007 and will always be subordinated until
      stockholders receive a stated preferred return, as described below:




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:




**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.




87


**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, 2007, 2006 and 2005 (continued)**


**Liquidating
                  Stage**
                **Distributions**
            
            **Amount
                  of Distribution**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.




**Operating
                Stage****Distributions**
            
            **Amount
                of Distribution**7%
                stockholder Return
              Threshold
            Once
                a cumulative non-compounded return of 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.





88


**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, 2007, 2006 and 2005 (continued)**


The
      Lightstone REIT pursuant to the arrangements described above has recorded the
      following amounts as of December 31, 2007, 2006 and 2005:





**2007**
            
            **2006**
            
            **2005**Acquisition
                fees
            
            $
            6,551,896
            
            $
            2,771,992
            
            
            -Asset
                management fees
            
            
            1,033,371
            
            
            274,724
            
            
            -Property
                management fees
            
            
            1,057,272
            
            
            328,532
            
            
            -Acquisition
                expenses reimbursed to Advisor
            
            
            635,848
            
            
            -
            
            
            -Total
            
            $
            9,278,387
            
            $
            3,375,248
            
            
            **-**




In
      July
      of 2007, the Company purchased a $16.0 million certificate of deposit with
      an
      affiliate of the Advisor. The certificate of deposit matured in less than three
      months, and earned interest at 10 percent. The Company redeemed the certificate
      of deposit in September of 2007, and has included $0.3 million in interest
      income from this investment.





**11** ***.
      Segment Information***





The
      Company currently operates in five business segments as of December 31, 2007:
      (i) retail real estate, (ii) residential real estate, (iii) industrial real
      estate (iv) office real estate and (v) hospitality. The Company’s advisor and
      its affiliates provide 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, 2007, 2006 and 2005 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, 2007, 2006 and 2005. The
      accounting policies of the segments are the same as those described in Note
      2:
      Summary of 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.




89


**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, 2007, 2006 and 2005 (continued)**


Selected
      results of operations for the years ended December 31, 2007, 2006 and 2005,
      and
      selected asset information regarding the Company’s operating segments are as
      follows:




**Retail**
            
            **Residential**
            
            **Industrial**
            
            **Hospitality**
            
            **Office**
            
            **Corporate**
            
            **Year
                  Ended December 31, 2007**Revenues:Rental
                income
            
            $
            5,870,238
            
            $
            9,115,538
            
            $
            6,010,341
            
            $
            534,088
            
            $
            -
            
            $
            -
            
            $
            21,530,205Tenant
                recovery income
            
            
            2,077,295
            
            
            129,533
            
            
            1,520,368
            
            
            2,254
            
            
            -
            
            
            -
            
            
            3,729,4507,947,533
            
            
            9,245,071
            
            
            7,530,709
            
            
            536,342
            
            
            -
            
            
            -
            
            
            25,259,655Expenses:Property
                operating expenses
            
            
            2,735,067
            
            
            4,431,535
            
            
            1,805,789
            
            
            607,439
            
            
            -
            
            
            -
            
            
            9,579,830Real
                estate taxes
            
            
            949,572
            
            
            1,056,977
            
            
            698,489
            
            
            34,828
            
            
            -
            
            
            -
            
            
            2,739,866General
                and adminsitrative costs
            
            
            6,205
            
            
            252,591
            
            
            5,919
            
            
            1,568
            
            
            -
            
            
            3,444,080
            
            
            3,710,363Depreciation
                and amortization
            
            
            2,210,951
            
            
            1,306,107
            
            
            2,579,386
            
            
            66,993
            
            
            -
            
            
            -
            
            
            6,163,437Operating
                expenses
            
            
            5,901,795
            
            
            7,047,210
            
            
            5,089,583
            
            
            710,828
            
            
            -
            
            
            3,444,080
            
            
            22,193,496Net
                property operations
            
            
            2,045,738
            
            
            2,197,861
            
            
            2,441,126
            
            
            (174,486
            )
            
            -
            
            
            (3,444,080
            )
            
            3,066,159Other
                income / (expense)
            
            
            25,020
            
            
            1,151,017
            
            
            13,021
            
            
            259,661
            
            
            -
            
            
            (286,679
            )
            
            1,162,040Interest
                income
            
            
            99,779
            
            
            4,413
            
            
            12,047
            
            
            
            
            
            
            
            
            1,763,529
            
            
            1,879,768Gain
                on Sale of Securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,301,949
            
            
            1,301,949Interest
                  expense
            
            
            (3,276,738
            )
            
            (3,045,229
            )
            
            (2,900,529
            )
            
            (161,887
            )
            
            -
            
            
            -
            
            
            (9,384,383
            )Loss
                in Unconsolidated joint ventures
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,267,949
            )
            
            -
            
            
            (7,267,949
            )Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            26
            
            
            26Net
                loss applicable to common shares
            
            $
            (1,106,201
            )
            $
            308,062
            
            $
            (434,335
            )
            $
            (76,712
            )
            $
            (7,267,949
            )
            $
            (665,255
            )
            $
            (9,242,390
            )**Balance
                sheet financial data at December 31, 2007:**Real
                estate assets, net
            
            $
            70,071,922
            
            $
            141,155,304
            
            $
            76,820,677
            
            $
            16,249,048
            
            $
            -
            
            $
            -
            
            $
            304,296,951Restricted
                escrows
            
            
            5,937,368
            
            
            2,665,972
            
            
            992,113
            
            
            -
            
            
            -
            
            
            -
            
            
            9,595,453Investment
                in unconsolidated joint venture
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            6,284,675
            
            
            -
            
            
            6,284,675Due
                from Affiliate
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Tenant
                and other accounts receivable
            
            
            758,060
            
            
            338,685
            
            
            372,683
            
            
            61,752
            
            
            -
            
            
            -
            
            
            1,531,180Acquired
                in-place lease intangibles, net
            
            
            1,079,320
            
            
            -
            
            
            902,972
            
            
            -
            
            
            -
            
            
            -
            
            
            1,982,292Acquired
                above market lease intangibles, net
            
            
            437,907
            
            
            116,077
            
            
            276,743
            
            
            -
            
            
            -
            
            
            -
            
            
            830,727Deferred
                leasing costs, net
            
            
            634,205
            
            
            -
            
            
            674,386
            
            
            -
            
            
            -
            
            
            -
            
            
            1,308,591Deferred
                financing costs, net
            
            
            676,163
            
            
            1,060,173
            
            
            312,298
            
            
            105,926
            
            
            -
            
            
            -
            
            
            2,154,560Other
                assets
            
            
            126,652
            
            
            676,521
            
            
            200,877
            
            
            251,786
            
            
            -
            
            
            118,364
            
            
            1,374,200Non-segmented
                assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            40,342,725
            
            
            40,342,725Total
                Assets
            
            $
            79,721,597
            
            $
            146,012,732
            
            $
            80,552,749
            
            $
            16,668,512
            
            $
            6,284,675
            
            $
            40,461,089
            
            $
            369,701,354Total
                Mortage and Note Payable
            
            $
            60,376,858
            
            $
            119,993,800
            
            $
            53,025,000
            
            $
            10,040,000
            
            $
            -
            
            $
            -
            
            $
            243,435,658





90


**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, 2007, 2006 and 2005 (continued)**
 **Retail**
              
              
              **Residential**
              
              
              **Industrial**
              
              
              **Hospitality**
              
              
              **Office**
              
              
              **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
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              882,212Depreciation
                  and amortization
              
              
              1,279,376
              
              
              1,395,443
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,674,819General
                  and adminsitrative costs
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              808,502
              
              
              808,502Operating
                  expenses
              
              
              3,346,679
              
              
              3,867,266
              
              
              -
              
              
              -
              
              
              -
              
              
              808,502
              
              
              8,022,447Net
                  property operations
              
              
              936,542
              
              
              112,180
              
              
              -
              
              
              -
              
              
              -
              
              
              (808,502
              )
              
              240,220Other
                  income
              
              
              59,256
              
              
              291,705
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              350,961Interest
                  income
              
              
              70,339
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              389,577
              
              
              459,916Interest
                  expense
              
              
              (1,322,050
              )
              
              (1,265,477
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,587,527
              )Minority
                  interest
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              86
              
              
              86Net
                  income applicable to common shares
              
              $
              (255,913
              )
              $
              (861,592
              )
              $
              -
              
              $
              -
              
              $
              -
              
              $
              (418,839
              )
              $
              (1,536,344
              )**Balance
                  sheet financial data at December 31, 2006:**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
              
              
              8,435,000Tenant
                  and other accounts receivable
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Acquired
                  in-place lease intangibles, net
              
              
              1,553,340
              
              
              248,338
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,801,678Acquired
                  above market lease intangibles, net
              
              
              601,987
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              601,987Deferred
                  financing 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
              
              $
              140,708,217Total
                  mortgage and note payable
              
              $
              54,750,000
              
              $
              40,725,000
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              95,475,000


**Retail**
            
            **Multi
                Family**
            
            **Industrial**
            
            **Hospitality**
            
            **Office**
            
            **Corporate**
            
            **Year
                Ended December 31, 2005**Revenues:Rental
                income
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Tenant
                recovery income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            --
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Expenses:Property
                operating expenses
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Real
                estate taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Depreciation
                and amortization
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -General
                and adminsitrative costs
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            117,571
            
            
            117,571Operating
                expenses
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            117,571
            
            
            117,571Net
                property operations
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (117,571
            )
            
            (117,571
            )Interest
                and other income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Interest
                expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,164
            
            
            1,164Net
                income applicable to common shares
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            (116,407
            )
            $
            (116,407
            )**Balance
                sheet financial data at December 31, 2005:**Real
                estate assets, net
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Restricted
                escrows
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Deposit
                for real estate purchase
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Tenant
                and other accounts receivable
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Acquired
                in-place lease intangibles, net
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Acquired
                above market lease intangibles, net
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Deferred
                financing costs, net
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Non-segmented
                assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            430,996
            
            
            430,996Total
                Assets
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            430,996
            
            $
            430,996


91




**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, 2007, 2006 and 2005 (continued)**





**12** ***.
      Quarterly Financial Data (Unaudited)***





The
      following table presents selected unaudited quarterly financial data for each
      quarter during the year ended December 31, 2007 and 2006:


2007Year ended
              
              Quarter ended
              
              Quarter
                  ended
              
              Quarter
                  ended
              
              Quarter
                  endedDecember 31,
              
              December 31,
              
              September
                    30,
              
              June
                    30,
              
              March
                    31,Total
                  revenue
              
              $
              25,259,655
              
              $
              7,985,616
              
              $
              6,051,962
              
              $
              6,006,174
              
              $
              5,215,903Net
                  loss
              
              
              (9,242,390
              )
              
              (543,596
              )
              
              (1,884,211
              )
              
              (2,451,828
              )
              
              (4,362,755
              )Net
                  loss per common share, basic and diluted
              
              $
              (1.01
              )
              $
              (0.04
              )
              $
              (0.17
              )
              $
              (0.32
              )
              $
              (0.86
              )
  2006Year ended
              
              Quarter ended
              
              Quarter
                  ended
              
              Quarter
                  ended
              
              Quarter
                  endedDecember 31,
              
              December 31,
              
              September
                    30,
              
              June
                    30,
              
              March
                    31,Total
                  revenue
              
              $
              8,262,667
              
              $
              3,698,776
              
              $
              3,071,771
              
              $
              1,479,310
              
              $
              12,810Net
                  income (loss)
              
              
              (1,536,344
              )
              
              (739,636
              )
              
              (822,606
              )
              
              116,060
              
              
              (90,162
              )Net
                  income (loss) per common share, basic and diluted
              
              $
              (0.96
              )
              $
              (0.22
              )
              $
              (0.46
              )
              $
              0.13
              
              $
              (0.37
              )


**13.**  ***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.  Counsel for
      the Lightstone REIT made motion to dismiss Mr. Gould’s complaint, which was
      granted by Judge Sweeney.  Mr. Gould has filed an appeal of the decision
      dismissing his case, which is pending.   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 Shifra
      Lichtenstein, his wife.




92


**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, 2007, 2006 and 2005 (continued)**


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





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




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





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





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




93




**Lightstone
                Value Plus REIT, Inc.****(A
                Maryland Corporation)****Schedule
                III****Real
                Estate and Accumulated Depreciation****December
                31, 2007**




Initial
                  Cost  (A)
              
              Costs
                  Capitalized Subsequent
              
              Gross
                  amount at which carried
                at
                  end of period
              
              AccumulatedEncumbrance
              
              Land
              
              Buildings
                  and Improvements
              
              to
                  Acquisition
              
              Land
                  and Improvements
              
              Buildings
                  and Improvements
              
              Total
                  (B)
              
              Depreciation
                  (C)
              
              Date
                  Acquired
              
              Depreciable
                  Life (D)Belz
                  Factory Outlet St Augustine, FL
              
              
              27,051,571
              
              $
              5,384,290
              
              $
              22,374,795
              
              $
              38,595
              
              $
              5,384,290
              
              $
              22,413,390
              
              $
              27,797,680
              
              $
              (1,512,275
              )
              
              3/29/2006
              
              
              (D
              )Four
                  Residential CommunitiesSoutheatern,
                  Michigan
              
              
              40,725,000
              
              
              8,051,125
              
              
              34,297,538
              
              
              413,552
              
              
              8,116,520
              
              
              34,645,695
              
              
              42,762,215
              
              
              (1,318,109
              )
              
              6/29/2006
              
              
              (D
              )Oakview
                  PlazaOmaha,
                  Nebraska
              
              
              27,500,000
              
              
              6,705,942
              
              
              25,462,968
              
              
              660,521
              
              
              7,355,942
              
              
              25,473,490
              
              
              32,829,432
              
              
              (804,789
              )
              
              12/21/2006
              
              
              (D
              )Gulfcoast
                  Industrial PortfolioNew
                  Orleans/Baton Rouge, Louisiana & San Antonio, Texas
              
              
              53,025,000
              
              
              12,767,476
              
              
              51,648,719
              
              
              482,798
              
              
              12,767,476
              
              
              52,131,516
              
              
              64,898,992
              
              
              (1,552,037
              )
              
              2/1/2007
              
              
              (D
              )Brazos
                  CrossingLake
                  Jackson, Texas
              
              
              -
              
              
              1,688,326
              
              
              -
              
              
              -
              
              
              1,688,326
              
              
              -
              
              
              1,688,326
              
              
              -
              
              
              6/29/2007
              
              
              (D
              )Belz
                  Factory OutletSt
                  Augustine, FL
              
              
              -
              
              
              2,842,650
              
              
              -
              
              
              -
              
              
              2,842,650
              
              
              -
              
              
              2,842,650
              
              
              -
              
              
              10/2/2007
              
              
              N/AHouston
                  ES HotelsHouston,
                  Texas
              
              
              10,040,000
              
              
              1,900,546
              
              
              14,359,818
              
              
              -
              
              
              1,900,546
              
              
              14,359,818
              
              
              16,260,364
              
              
              (62,315
              )
              
              10/17/2007
              
              
              (D
              )SarasotaSarasota,
                  Florida
              
              
              -
              
              
              2,000,000
              
              
              11,291,586
              
              
              -
              
              
              2,000,000
              
              
              11,291,586
              
              
              13,291,586
              
              
              (35,286
              )
              
              11/15/2007
              
              
              (D
              )Camden
                  ApartmentsTampa,
                  Florida
              
              
              79,268,800
              
              
              19,976,388
              
              
              79,905,549
              
              
              -
              
              
              19,976,388
              
              
              79,905,549
              
              
              99,881,937
              
              
              (170,739
              )
              
              11/16/2007
              
              
              (D
              )Total
              
              $
              237,610,371
              
              $
              61,316,743
              
              $
              239,340,973
              
              $
              1,595,466
              
              $
              62,032,138
              
              $
              240,221,044
              
              $
              302,253,182
              
              $
              (5,455,550
              )




94




Notes
      To
      Schedule III:




(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:




2007
            
            
            2006
            
            
            2005Balance
                at beginning of year
            
            $
            102,358,472
            
            $
            -
            
            $
            -Purchases
                of investment properties
            
            
            201,484,789
            
            
            104,093,295
            
            
            -Acquired
                in-place lease intangibles
            
            
            (1,461,731
            )
            
            (3,167,190
            )
            
            -Acquired
                in-place lease intangibles (commissions)
            
            
            (903,919
            )
            
            (677,245
            )
            
            -Acquired
                above market lease intangibles
            
            
            (526,657
            )
            
            (854,886
            )
            
            -Acquired
                below market lease intangibles
            
            
            1,302,228
            
            
            2,964,498
            
            
            -Balance
                at end of year
            
            $
            302,253,182
            
            $
            102,358,472
            
            $
            -




(C)
      Reconciliation of accumulated depreciation, note amortization is not included
      for purposes of this disclosure:




For
                  the years ended Decmeber 31,2007
              
              2006
              
              2005Balance
                  at beginning of period
              
              $
              1,184,590
              
              $
              -
              
              $
              -Depreciation
                  expense
              
              
              4,298,367
              
              
              1,184,590
              
              
              -Disposals
              
              
              (27,407
              )
              
              -
              
              
              -Balance
                  at end of period
              
              $
              5,455,550
              
              $
              1,184,590
              
              $
              -




(D)
      Depreciation is computed based upon the following estimated lives:




Buildings
                and improvements
            
            
            15-39
                yearsTenant
                improvements and equipment
            
            
            5-10
                years




**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
      2007.




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


Not
      applicable.




95




**Item 9A.** **CONTROLS
        AND PROCEDURES**


***Disclosure
      Controls and Procedures.*** As of
      December 31, 2007, we conducted an evaluation under the supervision and
      with the participation of the Advisor’s management, including the our Chairman
      and Chief Executive Officer and Interim Chief Financial Officer, of the
      effectiveness of the design and operation of our disclosure controls and
      procedures. The term “disclosure controls and procedures,” as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
      or the Exchange Act, means controls and other procedures of a company that
      are
      designed to ensure that information required to be disclosed by the company
      in
      the reports it files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the SEC’s rules
      and forms. Disclosure controls and procedures include, without limitation,
      controls and procedures designed to ensure that information required to be
      disclosed by a company in the reports that it files or submits under the
      Exchange Act is accumulated and communicated to the company’s management,
      including its principal executive and principal financial officers, or persons
      performing similar functions, as appropriate, to allow timely decisions
      regarding required disclosure. Based on this evaluation, our Chairman and Chief
      Executive Officer and Interim Chief Financial Officer concluded as of
      December 31, 2007 that our disclosure controls and procedures were adequate
      and effective.




***Management’s
      Report on Internal Control over Financial Reporting.*** Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Exchange Act Rules
      13a-15(f) and 15d-15(f). Our internal control system is a process designed
      by,
      or under the supervision of, our Chairman and Chief Executive Officer and
      Interim Chief Financial Officer and effected by our Board of Directors,
      management and other personnel to provide reasonable assurance regarding the
      reliability of our financial reporting and the preparation of financial
      statements for external reporting purposes in accordance with generally accepted
      accounting principles.




Our
      internal control over financial reporting includes policies and procedures
      that:




·
            
            pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairly reflect transactions and disposition of assets;




·
            
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that receipts and expenditures are being
                made
                only in accordance with the authorization of our management and directors;
                and




·
            
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of our assets that could
                have
                a material effect on our financial statements.




Because
      of inherent limitations, internal control over financial reporting may not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




Management
      assessed the effectiveness of our internal control over financial reporting
      as
      of December 31, 2007. In making this assessment, they used the control
      criteria framework of the Committee of Sponsoring Organizations, or COSO, of
      the
      Treadway Commission published in its report entitled *Internal
      Control—Integrated Framework* .
      Based
      on this evaluation, our management has concluded that our internal control
      over
      financial reporting was effective as of December 31, 2007.




This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this annual report.




***Changes
      in Internal Control over Financial Reporting*** .
      There
      were no changes in our internal control over financial reporting during the
      quarter ended December 31, 2007 that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.




96




***Limitations
      on the Effectiveness of Controls.*** Our
      Advisor’s management, including our Chairman and Chief Executive Officer and
      Interim Chief Financial Officer, does not expect that our disclosure controls
      and procedures or our internal control over financial reporting will prevent
      all
      error and all fraud. A control system, no matter how well conceived and
      operated, can provide only reasonable, not absolute, assurance that the
      objectives of the control system are met. Further, the design of a control
      system must reflect the fact that there are resource constraints, and the
      benefits of controls must be considered relative to their costs. Because of
      the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that all control issues and instances of fraud,
      if
      any, within an organization have been detected. These inherent limitations
      include the realities that judgments in decision-making can be faulty, and
      that
      breakdowns can occur because of simple error or mistake.




Additionally,
      controls can be circumvented by the individual acts of some persons, by
      collusion of two or more people, or by management override of the control.
      The
      design of any system of controls also is based in part upon certain assumptions
      about the likelihood of future events, and there can be no assurance that any
      design will succeed in achieving our stated goals under all potential future
      conditions. Over time, controls may become inadequate because of changes in
      conditions, or the degree of compliance with the policies or procedures may
      deteriorate. Because of the inherent limitations in a cost-effective control
      system, misstatements due to error or fraud may occur and not be detected.





**ITEM
      9B. OTHER INFORMATION:**




None.




**PART
      III.**





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




**Directors**




The
      following table presents certain information as of March 14, 2008 concerning
      each of our directors serving in such capacity:


**Year
                  Term of**
              
              **Served
                  as****Principal
                  Occupation and**
              
              **Office
                  Will**
              
              **a
                  Director****Name**
              
              **Age**
              
              **Positions
                  Held**
              
              **Expire**
              
              **Since**David
                  Lichtenstein
              
              47
              
              Chief
                  Executive Officer, President and Chairman of the Board of
                  Directors
              
              2008
              
              2004Edwin
                  J. Glickman
              
              75
              
              Director
              
              2008
              
              2005George
                  R. Whittemore
              
              58
              
              Director
              
              2008
              
              2006Shawn
                  R. Tominus
              
              48
              
              Director
              
              2008
              
              2006Bruno
                  de Vinck
              
              62
              
              Chief
                  Operating Officer, Senior Vice President, Secretary and
                  Director
              
              2008
              
              2005





***David
      Lichtenstein*** is the
      Chairman of our board of directors and our Chief Executive Officer. 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.




97





***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.




***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.




98


**Executive
      Officers:**




The
      following table presents certain information as of March 1, 2008 concerning
      each
      of our executive officers serving in such capacities:





**Name**
            
            **Age**
            
            **Principal
                Occupation and Positions Held**David
                Lichtenstein
            
            47
            
            Chief
                Executive Officer, President and Chairman of the Board of
                DirectorsBruno
                de Vinck
            
            62
            
            Chief
                Operating Officer, Senior Vice President, Secretary and
                DirectorStephen
                Hamrick
            
            55
            
            PresidentJoseph
                Teichman
            
            34
            
            General
                CounselJenniffer
                Collins
            
            38
            
            Interim
                Chief Financial Officer and Interim TreasurerJoshua
                Kornberg
            
            34
            
            Vice
                Presdient, Acquisitions




***David
      Lichtenstein*** for
      biographical information about Mr. Lichtenstein, see ‘‘Management —
Directors.”




***Bruno
      de Vinck*** for
      biographical information about Mr. Lichtenstein, see ‘‘Management —
Directors.”





***Stephen
      H. Hamrick*** is
      our
      President and the President and CEO of our broker dealer. Mr. Hamrick previously
      served as our Vice President of Investor Relations. 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.





***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.





***Jenniffer
      Collins*** is
      our
      interim Chief Financial Officer and interim Treasurer and previously served
      as
      our Controller from October of 2006 until September of 2007. Prior to joining
      us, Mrs. Collins served as the Corporate Controller for Orchid Cellmark, Inc.,
      a
      publicly traded bio-technology company, from February 2004 through October
      2006.
      From August 2001 through January 2004, Mrs. Collins served as the Director
      of
      Finance and Investor Relations for Tellium, Inc., an optical switching company
      which was purchased by Zhone Technologies, Inc. in November of 2003. Prior
      to
      that, Mrs. Collins spent two years at Keynote Systems, Inc., a start-up internet
      services company that went public in September of 1998. Mrs. Collins has over
      seven years experience in public accounting including a position with
      PricewaterhouseCoopers in the audit practice for the real estate group. She
      earned her CPA in New Jersey in 1993 and graduated with a B.S. in accounting
      from Lehigh University.




99





***Joshua
      Kornberg*** is
      our
      Vice President, Acquisitions and is also Senior Vice President, Director of
      Acquisitions for The Lightstone Group. Prior to joining the Lightstone Group
      in
      2006, Mr. Kornberg developed more than 10 years of experience in acquisitions,
      development, and asset management with The RREEF Funds, Morgan Stanley and
      TrizecHahn. Mr. Kornberg holds an MBA from York University with a dual
      specialization in Finance and Real Estate.




**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,
      2007
      and 2006.





**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”.




**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.




100





**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, 2008 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
            
            
            0.1
            %Edwin
                J. Glickman
            
            
            -
            
            
            -George
                R. Whittemore
            
            
            -
            
            
            -Shawn
                Tominus
            
            
            -
            
            
            -Bruno
                de Vinck
            
            
            -
            
            
            -Jenniffer
                Collins
            
            
            -
            
            
            -Joseph
                Teichman
            
            
            -
            
            
            -Stephen
                Hamrick
            
            
            10,000
            
            
            0.1
            %Joshua
                Kornberg
            
            
            -
            
            
            -Our directors
                and executive officers as a group (9 persons)
            
            
            30,000
            
            
            0.2
            %





**EQUITY
      COMPENSATION PLAN INFORMATION**




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




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




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




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




101





The
      following table sets forth information regarding securities authorized for
      issuance under our Employee and Director Incentive Share Plan as of
      December 31, 2007:





**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
            
            
            9,000
            
            $
            10.00
            
            
            66,000Equity
                Compensation Plans not approved by security holders
            
            
            N/A
            
            
            N/A
            
            
            N/ATotal
            
            
            9,000
            
            $
            10.00
            
            
            66,000





**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 up to 5% of
      the
      gross revenues from our residential, hospitality 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 property management
      fees paid for the year ended December 31, 2007 and 2006 totaled approximately
      $1.1 million and $0.3 million, respectively.





We
      pay
      the Dealer Manager selling commissions of up to 7% of gross offering proceeds,
      or approximately $21,000,000 if the maximum offering is sold, before reallowance
      of commissions earned by participating broker-dealers.




The
      Dealer Manager expects to reallow 100% of commissions earned for those
      transactions that involve participating broker-dealers. We also pay to 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.




102





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 fees recorded
      for
      the year ended December 31, 2007 and 2006 were approximately $6.6 million and
      $2.8 million, respectively. Total asset management fees recorded for the year
      ended December 31, 2007 and 2006 were approximately $1.0 million and $0.3
      million, respectively. Total acquisition expenses recorded to the Advisor for
      the year ended December 31, 2007 and 2006 were $0.6 million and $0,
      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, 2007 and 2006, Lightstone SLP, LLC had contributed
      $13.0 million and $4.3 million, respectively to the Operating Partnership in
      exchange for special general partner interests. Lightstone SLP, LLC contributed
      an additional $0.2 million in January 2008 related to 2007 offering costs.
      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.





In
      July
      of 2007, the Company purchased a $16.0 million certificate of deposit with
      an
      affiliate of the Advisor. The certificate of deposit matured in less than three
      months, and earned interest at 10 percent. The Company redeemed the certificate
      of deposit in September of 2007, and has included $0.3 million in interest
      income from this investment.




From
      time
      to time, Lightstone 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 the purchase by Lightstone 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 our behalf. This process results
      in
      terms similar to those that would be negotiated at an arm’s-length
      basis.




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 the Sponsor (the “Joint Venture”). The Company accounted for the
      investment in this unconsolidated joint venture under the equity method of
      accounting as the Company exercises significant influence, but does not control
      these entities. Initial equity from our co-venturer totaled $13.5 million
      (representing a 51% ownership interest). Our initial capital investment, funded
      with proceeds from our common stock offering, was $13.0 million (representing
      a
      49% ownership interest). 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,
      and as of the acquisition date, was 87.6% occupied (approximately 300
      tenants) and leased by tenants generally engaged in the female apparel business.
      The ground lease, dated as of January 14, 1954, provides for multiple renewal
      rights, with the last renewal period expiring on December 31, 2048. The Sublease
      Interest runs concurrently with this ground lease.




103





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




Amper,
      Politziner & Mattia audited our financial statements for the year ended
      December 31, 2007 and 2006. 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, 2007 and 2006 by the Lightstone REIT’s
      principal accounting firm of Amper, Politziner & Mattia:




**2007**
            
            **2006**Audit
                Fees
            
            $
            150,000
            
            $
            125,000Audit-Related
                Fees
            
            
            18,250
            
            
            41,500Tax
                Fees
            
            
            -
            
            
            -All
                Other Fees
            
            
            -
            
            
            -Total
                Fees
            
            $
            168,250
            
            $
            166,500





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.




104




**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, 2007.*




*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, 2007.*




***Audit
      Committee***


George
      R.
      Whittemore ****


Edwin
      J.
      Glickman


Shawn
      R.
      Tominus




105


**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, 2007





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.




106




EXHIBIT
                NO.
            
            DESCRIPTION10.24*
            
            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.10.26**
            
            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 LLC10.47##
            
            Limited
                Liability Company Agreement of Whitfield Sarasota LLC.10.48##
            
            Improved
                Commercial Property Earnest Money Contract between Camden Operating,
                L.P.
                and Lightstone Value Plus REIT, L.P.10.49##
            
            Form
                of Multifamily Mortgage, Assignment of Rents and Security Agreement
                for
                the Camden Portfolio (each property in the Camden Portfolio had
                substantially similar mortgages).10.50
            
            Consolidated
                Financial Statements for 1407 Broadway Mezz II LLC and Subsidiaries
                as of
                December 31, 2007.21.1
            
            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 2002




107




EXHIBIT
                NO.
            
            DESCRIPTION99*
            
            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#
            Incorporated
                by reference from Lightstone Value Plus Real Estate Invest Trust,
                Inc’s
                Annual Report on Form 10-K For The Fiscal Year Ended December 31,
                2006.##
            Incorporated
                by reference from Lightstone Value Plus Real Estate Investment Trust,
                Inc.’s Pre-Effective Amendment No. 1 to Post-Effective Amendment No. 12
                to
                the Registration Statement on Form S-11 filed with the Securities
                and
                Exchange Commission on January 15,
                2007.




108





**SIGNATURES**




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


**LIGHTSTONE
                VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.**Date: March
                28, 2008
            By:
            /s/
                David Lichtenstein**David
                  Lichtenstein**
              Chief
                Executive Officer 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
            
            Chief
                Executive Officer and Chairman of the Board
                of Directors
            
            March
                31, 2008**David
                  Lichtenstein**/s/
                Jenniffer Collins
            
            Interim
                Chief Financial Officer and Treasurer
            
            March
                31, 2008**Jenniffer
                  Collins**/s/
                Bruno de Vinck
            
            Director
            
            March
                31, 2008**Bruno
                  de Vinck**/s/
                Shawn R. Tominus
            
            Director
            
            March
                31, 2008**Shawn
                  R. Tominus**/s/
                Edwin J. Glickman
            
            Director
            
            March
                31, 2008**Edwin
                  J. Glickman**/s/
                George R. Whittemore
            
            Director
            
            March
                31, 2008**George
                R. Whittemore**




109