**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D. C. 20549**





**FORM
      10-Q**


(Mark
      One)


**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
      the
      quarterly period ended September 30, 2008





OR





** ̈**
            **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 of**
              **Incorporation
                or Organization)**
            
            **(I.R.S.
                Employer**
              **Identification
                No.)**





**1985
                Cedar Bridge Avenue, Suite 1****Lakewood,
                New Jersey**
            
            **08701****(Address
                of Principal Executive Offices)**
            
            **(Zip
                Code)**





**(732)
      367-0129**


**(Registrant’s
      Telephone Number, Including Area Code)**





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 þ No  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
                accelerated filer ̈
            
            Accelerated
                filer ̈
            
            Non-accelerated
                filerþ




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes  ̈ No þ





As
      of
      October 15, 2008, there were 30.8 million outstanding shares of common stock
      of
      Lightstone Value Plus Real Estate Investment Trust, Inc., including shares
      issued pursuant to the dividend reinvestment plan.








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





**INDEX**




**Page****PART I**
            
            **FINANCIAL
                INFORMATION**Item 1.
            
            Financial
                StatementsConsolidated
                Balance Sheets as of September 30, 2008 (unaudited) and December
                31,
                2007
            
            3Consolidated
                Statements of Operations (unaudited) for the Three and Nine Months
                Ended
                September 30, 2008 and 2007
            
            4Consolidated
                Statement of Stockholders’ Equity and Other Comprehensive Income (Loss)
                (unaudited) for the Nine Months Ended September 30, 2008
            
            5Consolidated
                Statements of Cash Flows (unaudited) for the Nine Months Ended September
                30, 2008 and 2007
            
            6Notes
                to Consolidated Financial Statements
            
            7Item 2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            27Item 3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            40Item 4.
            
            Controls
                and Procedures
            
            41**PART II**
            
            **OTHER
                INFORMATION**Item
                1.
            
            Legal
                Proceedings
            
            42Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            43Item
                3.
            
            Defaults
                Upon Senior Securities
            
            44Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            44Item
                5.
            
            Other
                Information
            
            44Item
                6.
            
            Exhibits
            
            44




2





**PART
      I. FINANCIAL INFORMATION, CONTINUED:**


**ITEM
      1. FINANCIAL STATEMENTS, CONTINUED:**





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


**CONSOLIDATED
      BALANCE SHEETS**





**September 30, 2008**
            
            **December 31, 2007**(unaudited)***Assets***Investment
                property:Land
            
            $
            62,053,867
            
            $
            62,032,138Building
            
            
            247,536,946
            
            
            240,221,044Construction
                in progress
            
            
            21,676,009
            
            
            7,499,319331,266,822
            
            
            309,752,501Less
                accumulated depreciation
            
            
            (10,445,917
            )
            
            (5,455,550
            )Net
                investment property
            
            
            320,820,905
            
            
            304,296,951Investments
                in unconsolidated affiliated real estate entities
            
            
            23,648,164
            
            
            6,284,675Investment
                in affiliate, at cost
            
            
            10,150,000
            
            
            -Cash
            
            
            69,549,490
            
            
            29,589,815Marketable
                securities
            
            
            11,443,048
            
            
            10,752,910Restricted
                escrows
            
            
            10,003,285
            
            
            9,595,453Due
                from Sponsor
            
            
            2,687,763
            
            
            -Tenant
                and other accounts receivable
            
            
            1,572,596
            
            
            1,531,180Note
                receivable
            
            
            49,500,000
            
            
            -Acquired
                in-place lease intangibles (net of accumulated amortization of $1,734,649
                and $2,646,629, respectively)
            
            
            1,328,278
            
            
            1,982,292Acquired
                above market lease intangibles (net of accumulated amortization of
                $654,043 and $373,175, respectively)
            
            
            528,139
            
            
            830,727Deferred
                intangible leasing costs (net of accumulated amortization of $764,352
                and
                $605,093, respectively)
            
            
            792,329
            
            
            1,153,712Deferred
                leasing costs (net of accumulated amortization of $106,700 and $50,606,
                respectively)
            
            
            562,271
            
            
            154,879Deferred
                financing costs (net of accumulated amortization of $532,903 and
                $172,939,
                respectively)
            
            
            2,227,443
            
            
            2,154,560Prepaid
                expenses and other assets
            
            
            3,142,602
            
            
            1,374,200**Total
                Assets**
            
            $
            507,956,313
            
            $
            369,701,354***Liabilities
                and Stockholders' Equity***Mortgage
                payable
            
            $
            238,966,203
            
            $
            237,610,371Note
                payable
            
            
            7,416,941
            
            
            5,825,286Accounts
                payable and accrued expenses
            
            
            12,824,161
            
            
            5,811,535Due
                to sponsor
            
            
            -
            
            
            521,427Tenant
                allowances and deposits payable
            
            
            975,189
            
            
            943,854Distributions
                payable
            
            
            4,931,064
            
            
            2,463,361Prepaid
                rental revenues
            
            
            1,040,078
            
            
            1,066,724Acquired
                below market lease intangibles (net of accumulated amortization of
                $2,047,648 and $1,874,843, respectively)
            
            
            1,456,778
            
            
            2,391,883267,610,414
            
            
            256,634,441Minority
                interest in partnership
            
            
            28,467,316
            
            
            12,954,715Commitments
                and contingenciesStockholders'
                equity:Preferred
                shares, $1 par value, 10,000,000 shares authorized, 18,620 and 0
                shares
                issued and outstanding, respectively, Series A liquidation preference
                of
                $1,000, per share
            
            
            18,620
            
            
            -Common
                stock, $.01 par value; 60,000,000 shares authorized, 29,403,272 and
                13,606,608 shares issued and outstanding, respectively
            
            
            294,033
            
            
            136,066Additional
                paid-in-capital
            
            
            279,461,689
            
            
            120,297,590Note
                receivable from stockholders
            
            
            (17,640,000
            )
            
            -Accumulated
                other comprehensive income(loss)
            
            
            24,433
            
            
            (1,199,278
            )Accumulated
                distributions in addition to net loss
            
            
            (50,280,192
            )
            
            (19,122,180
            )Total
                stockholder’s equity
            
            
            211,878,583
            
            
            100,112,198**Total
                Liabilities and Stockholders' Equity**
            
            $
            507,956,313
            
            $
            369,701,354





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


3





**PART
      I. FINANCIAL INFORMATION, CONTINUED:**


**ITEM
      1. FINANCIAL STATEMENTS, CONTINUED:**




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


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(UNAUDITED)**





**Three Months ended**
              **September 30, 2008**
            
            **Three Months ended**
              **September 30, 2007**
            
            **Nine Months ended**
              **September 30, 2008**
            
            **Nine Months ended**
              **September 30, 2007**Revenues:Rental
                income
            
            $
            9,191,180
            
            $
            5,086,124
            
            $
            26,841,456
            
            $
            14,560,096Tenant
                recovery income
            
            
            1,075,673
            
            
            965,838
            
            
            3,136,626
            
            
            2,713,94410,266,853
            
            
            6,051,962
            
            
            29,978,082
            
            
            17,274,040Expenses:Property
                operating expenses
            
            
            4,712,463
            
            
            2,330,393
            
            
            12,951,925
            
            
            6,237,907Real
                estate taxes
            
            
            1,030,937
            
            
            656,626
            
            
            3,117,564
            
            
            1,863,946General
                and administrative costs
            
            
            1,335,185
            
            
            399,977
            
            
            8,299,384
            
            
            2,865,059Depreciation
                and amortization
            
            
            2,136,873
            
            
            1,466,833
            
            
            6,539,587
            
            
            4,461,5329,215,458
            
            
            4,853,829
            
            
            30,908,460
            
            
            15,428,444Operating
                (loss) income
            
            
            1,051,395
            
            
            1,198,133
            
            
            (930,378
            )
            
            1,845,596Other
                income (expense)
            
            
            120,873
            
            
            (267,066
            )
            
            385,512
            
            
            615,511Interest
                income
            
            
            1,550,433
            
            
            1,147,106
            
            
            3,528,156
            
            
            1,147,106Interest
                expense
            
            
            (3,492,802
            )
            
            (2,240,420
            )
            
            (10,473,022
            )
            
            (6,396,234
            )Loss
                from investment in unconsolidated affiliated real estate
                entities
            
            
            (676,194
            )
            
            (1,721,940
            )
            
            (2,236,511
            )
            
            (5,910,940
            )Loss
                on sale of marketable securities
            
            
            (7,454
            )
            
            -
            
            
            (7,454
            )
            
            -Other
                than temporary impairment - marketable securities
            
            
            (9,733,015
            )
            
            -
            
            
            (9,733,015
            )
            
            -Minority
                interest
            
            
            173
            
            
            (24
            )
            
            322
            
            
            168Net
                loss applicable to common shares
            
            $
            (11,186,591
            )
            $
            (1,884,211
            )
            $
            (19,466,390
            )
            $
            (8,698,793
            )Net
                loss per common share, basic and diluted
            
            $
            (0.44
            )
            $
            (0.17
            )
            $
            (0.97
            )
            $
            (1.09
            )Weighted
                average number of common shares outstanding, basic and
                diluted
            
            
            25,464,696
            
            
            10,942,668
            
            
            20,058,683
            
            
            7,954,063





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


4





**PART
      I. FINANCIAL INFORMATION:**


**ITEM
      1. FINANCIAL STATEMENTS.**





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


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME /
      (LOSS)**


**(UNAUDITED)**





**Preferred Shares**
            
            **Common Shares**
            
            
            
            
            
            **Accumulated****Additional**
            
            
            
            **Other**
            
            **Accumulated**
            
            **Total****Preferred**
            
            
            
            **Common**
            
            
            
            **Paid-In**
            
            **Note Receivable**
            
            **Comprehensive**
            
            **Distributions in**
            
            **Stockholders'****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **from Stockholders**
            
            **Income / (Loss)**
            
            **Excess of Net Loss**
            
            **Equity****BALANCE,
                December 31, 2007**
            
            
            -
            
            $
            -
            
            
            13,606,608
            
            $
            136,066
            
            $
            120,297,590
            
            $
            -
            
            $
            (1,199,278
            )
            $
            (19,122,180
            )
            $
            100,112,198**Comprehensive
                loss:**Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (19,466,390
            )
            
            (19,466,390
            )Unrealized
                gain on available for sale securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,223,711
            
            
            -
            
            
            1,223,711Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (18,242,679
            )Distributions
                declared
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            (11,691,622
            )
            
            (11,691,622
            )Proceeds
                from offering
            
            
            18,620
            
            
            18,620
            
            
            15,433,761
            
            
            154,338
            
            
            171,573,601
            
            
            (17,640,000
            )
            
            -
            
            
            -
            
            
            154,106,559Selling
                commissions and dealer manager fees
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (13,255,954
            )
            
            -
            
            
            -
            
            
            -
            
            
            (13,255,954
            )Other
                offering costs
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,597,496
            )
            
            -
            
            
            -
            
            
            -
            
            
            (2,597,496
            )Proceeds
                from distribution reinvestment program
            
            
            
            
            
            
            
            
            362,903
            
            
            3,629
            
            
            3,443,948
            
            
            -
            
            
            -
            
            
            -
            
            
            3,447,577**BALANCE,
                September 30, 2008**
            
            
            18,620
            
            $
            18,620
            
            
            29,403,272
            
            $
            294,033
            
            $
            279,461,689
            
            $
            (17,640,000
            )
            $
            24,433
            
            $
            (50,280,192
            )
            $
            211,878,583





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


5




**PART
      I. FINANCIAL INFORMATION, CONTINUED:**


**ITEM
      1. FINANCIAL STATEMENTS, CONTINUED:**




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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(unaudited)**




**Nine months ended**
              **September 30, 2008**
            
            **Nine months ended**
              **September 30, 2007****CASH FLOWS
                FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (19,466,390)
                $
            
            
            (8,698,793
            )Loss
                allocated to minority interests
            
            
            (322
            )
            
            (168
            )Adjustments
                to reconcile net loss to net cash provided by operating
                activities:
            
            
            -
            
            
            -Depreciation
                or amortization
            
            
            6,100,190
            
            
            4,059,848Loss
                on sale of marketable securities
            
            
            7,454
            
            
            -Realized
                loss on impairment of marketable securities
            
            
            9,733,015
            
            
            -Amortization
                of deferred financing costs
            
            
            368,625
            
            
            76,876Amortization
                of deferred leasing costs
            
            
            439,397
            
            
            401,684Amortization
                of above and below-market lease intangibles
            
            
            (632,518
            )
            
            (450,412
            )Net
                equity in loss from investment in unconsolidated real estate
                entities
            
            
            2,236,511
            
            
            5,910,940Changes
                in assets and liabilities:
            
            
            -
            
            
            -Increase
                in prepaid expenses and other assets
            
            
            (1,567,703
            )
            
            (586,091
            )Increase
                in tenant and other accounts receivable
            
            
            (41,416
            )
            
            (756,752
            )Increase
                in tenant allowance and security deposits payable
            
            
            31,335
            
            
            361,220Increase
                in accounts payable and accrued expenses
            
            
            6,672,961
            
            
            2,347,101Increase
                in prepaid rents
            
            
            (26,645
            )
            
            521,061Net
                cash provided by (used in)operating activities
            
            
            3,854,494
            
            
            3,186,514**CASH
                FLOWS USED IN INVESTING ACTIVITIES:**Purchase
                of investment property, net
            
            
            (22,656,237
            )
            
            (62,702,844
            )Purchase
                of marketable securities
            
            
            (9,290,458
            )
            
            (24,847,830
            )Note
                receivable from stockholders
            
            
            (49,500,000
            )
            
            -Proceeds
                from sale of marketable securities
            
            
            83,562
            
            
            -Purchase
                of investment in affiliate
            
            
            (10,150,000
            )
            
            (13,476,185
            )Funding
                of restricted escrows
            
            
            (407,832
            )
            
            (2,426,668
            )Refundable
                deposit for investment in real estate
            
            
            -
            
            
            (13,203,195
            )Net
                cash used in investing activities
            
            
            (91,920,965
            )
            
            (116,656,722
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                from mortgage financing
            
            
            3,187,177
            
            
            53,025,000Mortgage
                payments
            
            
            (230,947
            )
            
            (120,790
            )Payment
                of loan fees and expenses
            
            
            (441,509
            )
            
            (348,167
            )Proceeds
                from issuance of common stock
            
            
            152,146,559
            
            
            71,242,238Proceeds
                from issuance of special general partnership units
            
            
            12,292,129
            
            
            7,146,129Payment
                of offering costs
            
            
            (15,853,449
            )
            
            (6,970,286
            )Note
                receivable from stockholders
            
            
            (17,640,000
            )
            
            -Due
                from escrow agent
            
            
            -
            
            
            163,949Distributions
                paid
            
            
            (5,433,814
            )
            
            (2,118,457
            )Net
                cash provided by financing activities
            
            
            128,026,146
            
            
            122,019,616**Net
                change in cash**
            
            
            39,959,675
            
            
            8,549,408**Cash,
                beginning of period**
            
            
            29,589,815
            
            
            19,280,710**Cash,
                end of period**
            
            $
            69,549,490
            
            $
            27,830,118**Supplemental
                disclosure of cash flow information:**Cash
                paid for interest
            
            $
            10,667,126
            
            $
            6,139,799Dividends
                declared
            
            $
            11,691,622
            
            $
            4,661,959Unrealized
                gain on available for sale securities
            
            $
            1,223,711
            
            $
            1,545,670Proceeds
                from shares issued in distribution reinvestment program
            
            $
            3,447,577
            
            $
            -Proceeds
                from shares issued in joint venture investment
            
            $
            19,600,000
            
            $
            -





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




6




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


**Notes
      to the Consolidated Financial Statements**


(continued)




**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
      September 30, 2008, cumulative gross offering proceeds of approximately $290.3
      million, which includes $5.6 million of proceeds from shares issued in the
      distribution reinvestment program, 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 September 30, 2008, offering costs were
      $29.0 million and were offset by $28.5 million of proceeds from the sale of
      SLP
      Units of which $3.2 million had yet been funded. The Advisor intends to offset
      this obligation with a portion of the $9.7 million acquisition fee to be paid
      to
      the Advisor upon the Company’s settlement of its acquisition of the 25%
      membership interest in Prime Outlets Acquisitions Company (see note
      5).





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 September 30, 2008, 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
      September 30, 2008, offering costs incurred were approximately 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. As of September 30, 2008, the
      Company has completed ten acquisitions: the St. Augustine Outlet Center, a
      retail outlet shopping mall in St. Augustine, Florida, on March 31, 2006; the
      Southeast Michigan Apartments, four multi-family communities in Southeast
      Michigan on June 29, 2006; the Oakview Power Center, a retail shopping mall
      located in Omaha, Nebraska, on December 21, 2006; 1407 Broadway, 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, New York, on January 4,
      2007; the Gulf States Industrial portfolio, a portfolio of 12 industrial
      and 2 office buildings in Louisiana and Texas, on February 1, 2007; and has
      developed the Brazos Crossing Power Center after acquiring a land parcel in
      Lake
      Jackson, Texas, on June 29, 2007, the Sugarland and Katy Highway Extended Stay
      Hotels in Houston, Texas on October 17, 2007, the Southeast Apartments, which
      included, five multifamily apartment communities, one in Tampa, Florida, two
      in
      Greensboro, North Carolina and two in Charlotte, North Carolina on November
      16,
      2007, and the Sarasota Industrial Property, an industrial building in Sarasota,
      Florida on November 13, 2007. On June 26, 2008, the Company acquired an interest
      in an entity with an interest in two outlet malls in Orlando, Florida. All
      of
      the acquired properties and development activities are managed by affiliates
      of
      Lightstone Value Plus REIT Management LLC (the “Property Manager”).





7





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


**Notes
      to the Consolidated Financial Statements**


(continued)





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, development,
      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 are outlined in each of the respective
      agreements. (See Note 13, 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 September 30, 2008, 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.





The
      unaudited consolidated statements of operations for interim periods are not
      necessarily indicative of results for the full year. For further information,
      refer to consolidated financial statements and notes thereto included in the
      Company’s annual report on Form 10-K filed with the Securities and Exchange
      Commission for the year ended December 31, 2007.





Investments
      in real estate entities 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.





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 money market funds or commercial paper. To date, the
      Company has not experienced any losses on its cash and cash
      equivalents.




Marketable
      Securities





Marketable
      securities consists 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 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.





During
      the nine months ended September 30, 2008, the Company recorded a write-down
      of
      $9,733,015 compared to $0 for the nine months ended September 30, 2007 for
      other-than-temporary declines on certain available-for-sale securities, which
      is
      included in Other than temporary impairment - equity securities on the
      Consolidated Statement of Operations. The Company’s securities and the overall
      REIT market experienced significant declines in the third quarter of 2008,
      which
      increased the duration and magnitude of the Company’s unrealized losses. The
      overall challenges in the economic environment, including near term prospects
      for certain of the Company’s securities makes a recovery period difficult to
      project. Although the Company has the ability to hold these securities until
      potential recovery, the Company believes certain of the losses for these
      securities are other than temporary. Of the investment securities held on
      September 30, 2008 and December 31, 2007, the Company has accumulated other
      comprehensive gain of $24,433 and loss of $ 1,199,278 ,
      respectively which includes gross unrealized losses of $50,562, and $1,199,278,
      respectively.





8





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


**Notes
      to the Consolidated Financial Statements**


(continued)





The
      following is a summary of the Company’s available for sale securities at
      September 30, 2008 and December 31, 2007:




At September 30,  2008
            
            At December 31, 2007(unaudited)Cost
            
            $
            21,151,630
            
            $
            11,952,188Other
                than temporary impairment - equity securities
            
            
            (9,733,015
            )
            
            -Unrealized
                gain / (loss)
            
            
            24,433
            
            
            (1,199,278
            )Fair
                value at period end
            
            $
            11,443,048
            
            $
            10,752,910





Revenue
      Recognition




Minimum
      rents are recognized on a straight-line 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.





Room
      revenue for the hotel properties are recognized as stays occur, using the
      accrual method of accounting. Amounts paid in advance are deferred until stays
      occur.





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 $0.2 million
      at September 30, 2008 and December 31, 2007, 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 and identified intangible assets and
      liabilities 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.





9





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


**Notes
      to the Consolidated Financial Statements**


(continued)





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




The
      aggregate value of other acquired intangible assets includes tenant
      relationships. Factors considered by management in assigning a value to these
      relationships include: assumptions of probability of lease renewals, investment
      in tenant improvements, leasing commissions and an approximate time lapse in
      rental income while a new tenant is located. The value assigned to this
      intangible asset is amortized over the remaining lease terms ranging from one
      month to approximately 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 September 30, 2008. 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 based on the straight-line method
      using a weighted average composite life of thirty-nine years for buildings
      and
      improvements and five to ten years for equipment and fixtures. Expenditures
      for
      tenant improvements and construction allowances paid to commercial tenants
      are
      capitalized and amortized over the initial term of each lease, currently one
      month to 11 years. Maintenance and repairs are charged to expense as
      incurred.




Deferred
      Costs




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





Income
      or Losses from Investments in Unconsolidated Real Estate
      Entities





The
      Company invests in real estate entities and joint ventures that are formed
      to
      acquire, develop, and/or sell real estate assets. These entities are not
      majority owned or controlled by the Company, and are not consolidated in its
      financial statements. These investments are recorded under either the equity
      or
      cost method of accounting as appropriate. Under the equity method, the Company
      records its share of the net income and losses from the underlying entities
      on a
      single line item in the consolidated statements of operations as income or
      loss
      from investments in unconsolidated affiliated real estate entities.  The
      Company determines whether or not consolidation of these entities is recorded
      through the appropriate evaluation of FIN No. 46, *Consolidation
      of Variable Interests.*





10





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


**Notes
      to the Consolidated Financial Statements**


(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 September
      30, 2008, the Company has complied with the requirements for maintaining its
      REIT status.





The
      Company has net operating loss carry forwards of $0.7 million for Federal income
      tax purposes as of September 30, 2008. The availability of such loss
      carry-forwards 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* .
      FIN 48
      prescribes a comprehensive model for how a company should recognize, measure,
      present, and disclose in its financial statements uncertain tax positions that
      the company has taken or expects to take on a tax return. This interpretation
      only allows a favorable tax position to be included in the calculation of tax
      liabilities and expenses if a company concludes that it is more likely than
      not
      that its adopted tax position will prevail if challenged by tax authorities.
      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 September 30, 2008, the
      Company had no material uncertain income tax positions. The tax years 2005
      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 (which occurred in October 2008). 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
      September 30, 2008, the Advisor has advanced approximately $28.5 million to
      the
      Company for offering costs, including commission and dealer manager fees. Based
      on gross proceeds of approximately $290.3 million from its public offering
      as of September 30, 2008, the Company’s responsibility for the reimbursement of
      advances for commissions and dealer manager fees was limited to 10% of gross
      offering proceeds, which generally approximate $22.7 million (or 8% of the
      gross
      offering proceeds), and its obligation for advances for organization and
      third-party offering costs was limited to approximately $6.3 million (or 2%
      of
      the gross offering proceeds).





Financial
      Instruments




The
      carrying amounts of cash and cash equivalents, accounts receivable and accounts
      payable approximate their fair values because of the short maturity of these
      instruments. The fair value of the mortgage-debt and note payable as of
      September 30, 2008 approximated the book value of approximately $246.4 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.




Stock-Based
      Compensation





We
      have a
      stock-based incentive award plan for our directors. We account for our incentive
      award plan in accordance with SFAS No. 123R, "Share-Based Payment." Awards
      are
      granted at the fair market value on the date of grant with fair value estimated
      using the Black-Scholes-Merton option valuation model, which incorporates
      assumptions surrounding volatility, dividend yield, the risk-free interest
      rate,
      expected life, and the exercise price as compared to the underlying stock price
      on the grant date. SFAS No. 123R also requires the tax benefits associated
      with
      these share-based payments to be classified as financing activities in the
      consolidated statement of cash flows, rather than as operating cash flows as
      required under previous regulations. For the nine months ended September 30,
      2008 and 2007, we had no significant compensation cost related to our incentive
      award plan.





11





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


**Notes
      to the Consolidated Financial Statements**


(continued)





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 18,000 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 18,000 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 adopted SFAS No. 159 as required effective January 1, 2008. The adoption
      of SFAS No. 159 did not have a material effect on the consolidated results
      of
      operations or financial position.




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 adopted SFAS No.
      157
      as required effective January 1, 2008. The adoption of SFAS No. 157 did not
      have
      a material effect on the consolidated results of operations or financial
      position.





In
      May
      2008, the FASB issued SFAS No. 162, *The
      Hierarchy of Generally Accepted Accounting Principles* (“SFAS
      No. 162”). SFAS No. 162 identifies the sources of accounting principles and the
      framework for selecting the principles to be used in the preparation of
      financial statements of nongovernmental entities that are presented in
      conformity with generally accepted accounting principles in the United States.
      SFAS 162 is effective 60 days following the Securities and Exchange Commission’s
      (“SEC”) approval of the Public Company Accounting Oversight Board amendments to
      AU Section 411, The Meaning of Present Fairly in Conformity with Generally
      Accepted Accounting Principles. The Company is currently evaluating the
      potential impact, if any, of the adoption of SFAS No. 162 on its financial
      statements.





In
      December 2007, the FASB issued FASB No. 141(R), *Business
      Combinations*  *(Revised)* 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, *Noncontrolling
      Interests in Consolidated Financial Statements,* 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.




**3.
      *Investments in Unconsolidated Affiliated Real Estate
      Entities***





*Mill
      Run Interest*





On
      June
      26, 2008, the Company, through the Operating Partnership, entered into
      Contribution and Conveyance Agreements between the Operating Partnership and
      (i)
      Arbor Mill Run JRM LLC, a Delaware limited liability company (“Arbor JRM”) and
      (ii) Arbor National CJ, LLC, a New York limited liability company (“Arbor CJ”),
      pursuant to which Arbor JRM and Arbor CJ contributed to the Operating
      Partnership an aggregate 22.54% membership interest (the “Mill Run Interest”) in
      Mill Run. The Mill Run Interest is a non-managing interest, with consent rights
      with respect to certain major decisions. The Company’s sponsor is the managing
      member and owns 55% of Mill Run. Profit and cash distributions will be allocated
      in accordance with each investor’s ownership percentage of the venture. The
      acquisition price for the Mill Run Interest was approximately $85 million,
      $19.6
      million of which was in the form of equity and $65.4 million in the form of
      indebtedness secured by the Mill Run Properties. As the Company has recorded
      this investment in accordance with the equity method of accounting, the
      indebtedness is not included in the Company’s investment. In connection with
      this transaction, Lightstone Value Plus REIT LLC, our advisor, received an
      acquisition fee equal to 2.75% of the acquisition price, or approximately $2.4
      million. Closing costs totaled approximately $1.1 million. These costs are
      included in general and administrative expenses. In exchange for the Mill Run
      Interest, the Operating Partnership issued (i) 96,000 units of common limited
      partnership interest in the Operating Partnership (“Common Units”) and 18,240
      Series A preferred limited partnership units in the Operating Partnership (the
      “Preferred Units”) with an aggregate liquidation preference of $18,240,000 to
      Arbor JRM and (ii) 2,000 Common Units and 380 Preferred Units with an aggregate
      liquidation preference of $380,000 to Arbor CJ. The total aggregate value of
      the
      Common Units and Preferred Units issued by the Operating Partnership in exchange
      for the Mill Run Interest was $19,600,000.





12





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


**Notes
      to the Consolidated Financial Statements**


(continued)





In
      connection with the contribution of the Mill Run Interest, the Company made
      loans to Arbor JRM and Arbor CJ in the aggregate principal amount of $17.6
      million (the “Mill Loans”), which is classified as contra-equity. The Mill Loans
      are payable semi-annually and shall accrue interest at an annual rate of 4%.
      The
      Mill Loans mature on July 1, 2016 and contain customary events of default and
      default remedies. The Mill Loans require Arbor JRM and Arbor CJ to prepay their
      respective loans in full upon the redemption of the Preferred Units by the
      Operating Partnership. The Mill Loans are secured by the Preferred Units and
      Common Units issued in connection with the acquisition of the Mill Interest.
      Accrued interest related to this loan totaled $0.2 million at September 30,
      2008, and is included in prepaid expenses and other assets.





The
      Company accounted for the investment in this unconsolidated affiliated real
      estate entity under the equity method of accounting as the Company exercises
      significant influence, but does not control this entity. In accordance with
      APB
      18, *The
      Equity Method of Accounting for Investments in Common Stock* ,
      paragraph 19b., the difference between the cost of the Mill Run Interest and
      the
      amount of underlying equity in net assets of the Company has been accounted
      for
      as if the investee were a consolidated subsidiary, and additional depreciation
      and amortization will be recorded over the lives of the appropriate assets,
      in
      accordance with the allocation of the difference between land, building and
      intangible assets of Mill Run. For the nine months ended September 30, 2008
      and
      2007, the Company’s results included a $0.1 million and $0 gain, respectively
      from investment in this unconsolidated affiliated real estate entity resulting
      in a net investment balance of respectively $19.7 million as of September 30,
      2008.





In-place
      rents, net of rent concessions was $25.3 million, annualized at September 30,
      2008 and average occupancy for the properties at September 30, 2008 was
      83.1%.





The
      following table represents the condensed income statement for the unconsolidated
      affiliated real estate entity for the following periods as of September 30,
      2008:





For the period June 26, 2008
              through June 30, 2008
            
            For the period July 1, 2008
              through September 30, 2008(unaudited)
            
            (unaudited)Revenue
            
            $
            404,347
            
            
            9,976,908Property
                operating expenses
            
            
            177,990
            
            
            3,204,896Depreciation
                and amortization
            
            
            126,996
            
            
            2,939,893304,986
            
            
            6,144,789Operating
                income
            
            
            99,361
            
            
            3,832,119Other
                income
            
            
            2,932
            
            
            92,456Interest
                income
            
            
            658
            
            
            20,268Interest
                expense
            
            
            (134,031
            )
            
            (3,375,970
            )Net
                income (loss)
            
            
            (31,080
            )
            
            568,873Company's
                share of net income (loss) (22.54%)
            
            $
            (7,005
            )
            $
            128,224




The
      following table represents the condensed balance sheet for this unconsolidated
      affiliated real estate entity as of September 30, 2008:





13





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


**Notes
      to the Consolidated Financial Statements**


(continued)





September 30, 2008(unaudited)Real
                estate, at cost (net):
            
            
            267,046,899Intangible
                assets
            
            
            1,204,398Cash
                and restricted cash
            
            
            4,948,160Other
                assets
            
            
            26,782,586Total
                Assets
            
            
            299,982,043Mortgage
                note payable
            
            
            277,888,723Other
                liabilities
            
            
            26,033,011Member
                capital
            
            
            (3,939,691
            )Total
                liabilities and members' capital
            
            
            299,982,043





*1407
      Broadway*




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
      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 the Sponsor, 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). 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. (“Lehman”). Additionally, Lehman will receive 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. All other income and cash distributions will be
      allocated in accordance with each investor’s ownership percentage of the
      venture. 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 and the co-Venturer
      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 nine months ended September 30, 2008 and 2007, the Company’s results
      included a $2.4 million and $5.9 million loss from investment in this
      unconsolidated affiliated real estate entity, respectively resulting in a net
      investment balance of approximately $3.9 million as of September 30, 2008.
      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 $13.6 million are available to fund these
      improvements.




In-place
      rents, net of rent concessions was $37.3 million, annualized at September 30,
      2008 and average occupancy for the property at September 30, 2008 was
      83.6%.





The
      following table represents the condensed income statement for this
      unconsolidated affiliated real estate entity for the three month period ended
      September 30, 2008 and September 30, 2007:





For the quarter ended
              September 30, 2008
            
            For the quarter ended
              September 30, 2007(unaudited)
            
            (unaudited)Total Revenue
            
            $
            10,081,003
            
            $
            9,668,828Total property
                operating expenses
            
            
            (7,515,980
            )
            
            (6,944,157
            )Depreciation
                & Amortization
            
            
            (2,551,647
            )
            
            (3,978,760
            )Other
                Income
            
            
            40,893
            
            
            15,425Interest
                Income
            
            
            24,317
            
            
            35,253Interest
                Expense
            
            
            (1,720,257
            )
            
            (2,310,755
            )Net
                operating loss
            
            $
            (1,641,671
            )
            $
            (3,514,166
            )Company's share
                of net operating loss (49%)
            
            $
            (804,419
            )
            $
            (1,721,940
            )




14





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


**Notes
      to the Consolidated Financial Statements**


(continued)





The
      following table represents the condensed income statement for the unconsolidated
      affiliated real estate entity for the nine month period ended September 30,
      2008
      and for the period from January 4, 2007 through September 30, 2007:





For the Nine Months Ended
              September 30, 2008
            
            For the period January 4,
              2007 through
              September 30, 2007(unaudited)
            
            (unaudited)Total Revenue
            
            $
            29,356,934
            
            $
            27,563,413Total
                property operating expenses
            
            
            (20,389,476
            )
            
            (20,064,841
            )Depreciation
                & Amortization
            
            
            (9,045,812
            )
            
            (12,950,254
            )Other
                Income
            
            
            805,023
            
            
            28,803Interest
                Income
            
            
            100,769
            
            
            73,326Interest
                Expense
            
            
            (5,639,132
            )
            
            (6,713,591
            )Net
                operating income / (loss)
            
            $
            (4,811,694
            )
            $
            (12,063,144
            )Company's share
                of net operating loss (49%)
            
            $
            (2,357,730
            )
            $
            (5,910,940
            )




The
      following table represents the condensed balance sheet for the unconsolidated
      affiliated real estate entity as of September 30, 2008 and December 31,
      2007:




September 30, 2008
            
            December 31, 2007(unaudited)Real estate, at cost (net):
            
            $
            111,029,809
            
            $
            111,361,237Intangible assets
            
            
            5,040,036
            
            
            9,009,676Cash
                and restricted cash
            
            
            14,214,475
            
            
            11,458,097Other
                assets
            
            
            6,937,462
            
            
            9,475,857Total
                Assets
            
            $
            137,221,782
            
            $
            141,304,867Mortgage
                note payable
            
            $
            113,709,491
            
            $
            110,847,201Other
                liabilities
            
            
            15,506,682
            
            
            17,640,362Member
                capital
            
            
            8,005,609
            
            
            12,817,304Total
                liabilities and members' capital
            
            $
            137,221,782
            
            $
            141,304,867




***4.
      Investment in Affiliate***




***Park
      Avenue Funding***





On
      April
      16, 2008, the Company made a preferred equity contribution of $11,000,000 (the
“
Contribution ”) to PAF-SUB LLC (“ PAF ”), a wholly-owned subsidiary of Park
      Avenue Funding LLC (“ Park Avenue ”), in exchange for membership interests of
      PAF with certain rights and preferences described below (the “ Preferred Units
”). Park Avenue is a real estate lending company making loans, including first
      or second mortgages, mezzanine loans and collateral pledges of mortgages, to
      finance real estate transactions. Property types considered include
      multi-family, office, industrial, retail, self-storage, parking and land. Both
      PAF and Park Avenue are affiliates of our Sponsor.




PAF’s
      limited liability company agreement was amended on April 16, 2008 to create
      the
      Preferred Units and admit the Company as a member. The Preferred Units are
      entitled to a cumulative preferred distribution at the rate of 10% per annum,
      payable quarterly. In the event that PAF fails to pay such distribution when
      due, the preferred distribution rate increases to 17% per annum. The Preferred
      Units are redeemable, in whole or in part, at any time at the option of the
      Company upon at least 180 days’ prior written notice (the “ Redemption ”). In
      addition, the Preferred Units are entitled to a liquidation preference senior
      to
      any distribution upon dissolution with respect to other equity interests of
      PAF
      in an amount equal to (x) the Contribution plus any accrued but unpaid
      distributions less (y) any Redemption payments.





15





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


**Notes
      to the Consolidated Financial Statements**


(continued)





In
      connection with the Contribution, the Company and Park Avenue entered into
      a
      guarantee agreement on April 16, 2008, whereby Park Avenue unconditionally
      and
      irrevocably guarantees payment of the Redemption amounts when due (the “
Guarantee ”). Also, Park Avenue agrees to pay all costs and expenses incurred by
      the Company in connection with the enforcement of the Guarantee.





The
      Company does not have any voting rights for this investment, and does not have
      significant influence over this investment. The Company accounted for this
      investment under the cost method. Total accrued distributions related to this
      investment totaled $0.3 million at September 30, 2008, and are included in
      prepaid expenses and other assets.




*5.Note
        Receivable*


The
      Company, through the Operating Partnership, entered into a Contribution and
      Conveyance Agreement with AR Prime Holdings LLC, a Delaware limited liability
      company (“AR Prime”), pursuant to which AR Prime will contribute to the
      Operating Partnership a 25% membership interest (the “Prime Interest”) in Prime
      Outlets Acquisitions Company (“Prime”). Prime Interest is a non-managing
      interest, with certain consent rights with respect to major decisions. An
      affiliate of The Lightstone Group, the Company’s sponsor, is the majority owner
      and manager of Prime. The acquisition price for the Prime Interest is
      approximately $373 million, $55 million of which will be in the form of equity
      and $318 million of which will be in the form of indebtedness secured by the
      Prime Properties (18 retail outlet malls, and four development projects). As
      the
      Company would account for this investment in accordance with the equity method
      of accounting, the indebtedness would not be included in the Company’s
      investment. In connection with the transaction, upon closing our advisor will
      receive an acquisition fee equal to 2.75% of the acquisition price, or
      approximately $9.7 million.





The
      closing of the acquisition of the Prime Interest is subject to customary closing
      conditions, and is scheduled for the earlier of December 15, 2008 or a maximum
      30 days after the Operating Partnership obtains audited financial statements
      of
      Prime for the last three fiscal years (the “Financial Statements”), but in no
      event later than June 26, 2009. If the Operating Partnership does not obtain
      the
      Financial Statements by June 26, 2009 and does not close the transaction, it
      would be required to pay liquidated damages in the amount of $6.08 million.
      However, AR Prime cannot specifically enforce the Contribution and Conveyance
      Agreement if the Operating Partnership does not obtain the Financial Statements.
      Subject to the fulfillment of the closing conditions, the Operating Partnership
      will issue to AR Prime (i) 275,000 Common Units and 52,250 Preferred Units
      with
      an aggregate liquidation preference of $52,250,000 (this amount will be reduced
      by the amount of any distributions by Prime to AR Prime prior to closing) and
      (ii) Common Units with a value equal to 5% of the Adjustment Amount and
      additional Preferred Units with a liquidation preference equal to 95% of the
      Adjustment Amount. The “Adjustment Amount” is the amount of interest that would
      have accrued on a loan in the principal amount of $52,250,000, at an interest
      rate of 4.6316%, from June 26, 2008 until the closing.





In
      connection with the contribution of the Prime Interest, the Company made a
      loan
      to AR Prime in the principal amount of $49.5 million (the “Prime Loan”). The
      Prime Loan is payable semi-annually and accrues interest at an annual rate
      of
      4%. The Prime Loan matures on July 1, 2016 and contains customary events of
      default and default remedies. The Prime Loan contains provisions requiring
      AR
      Prime to prepay the Prime Loan (i) in full upon the redemption by the Operating
      Partnership of the Preferred Units to be issued to AR Prime in connection with
      the closing of the acquisition of the Prime Interest and (ii) in part, with
      the
      proceeds of any distribution received by AR Prime from Prime prior to such
      closing. The Prime Loan is secured by AR Prime’s interest in the Prime Interest.
      Upon the closing, the Common Units and Preferred Units issued to AR Prime will
      replace the Prime Interest as the security for the Prime Loan. Also, upon the
      closing, the Company will make an additional loan to AR Prime, on the same
      terms
      and conditions as the Prime Loan, in the principal amount equal to 90% of the
      Adjustment Amount. Accrued interest related to this loan totaled $0.5 million
      at
      September 30, 2008, and is included in prepaid and other accounts
      receivables.




*6.Future
        Minimum Rentals*


As
      of
      September 30, 2008, the approximate fixed future minimum rentals from the
      Company’s commercial real estate properties are as follows for the remainder of
      2008 and thereafter:




Total Fixed Future2008
            
            2009
            
            2010
            
            2011
            
            2012
            
            Thereafter
            
            Minimum Rentals$
            2,909,686
            
            $
            10,251,750
            
            $
            8,575,403
            
            $
            6,699,618
            
            $
            5,264,189
            
            $
            23,748,218
            
            $
            57,448,864


*7.Pro
        Forma
        Combined Condensed Statements of Operations*


The
      following unaudited pro forma combined condensed statements of operations set
      forth the consolidated results of operations for the nine months ended September
      30, 2008 and September 30, 2007, respectively, as if the acquisitions and equity
      investments listed in Note 1 had occurred at January 1, 2007. There was only
      one
      acquisition during the nine months ended September 30, 2008, that took place
      on
      June 26, 2008. 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 nine months ended September 30, 2008 and September
      30, 2007, respectively, or for any future period.




16





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


**Notes
      to the Consolidated Financial Statements**


(continued)





Nine Months EndedSeptember 30,2008
            
            2007Real
                estate revenues
            
            $
            29,978,081
            
            $
            29,163,717Equity
                in loss from investment in unconsolidated affiliated real estate
                entities
            
            
            (2,662,936
            )
            
            (7,084,341
            )Net
                loss
            
            
            (19,892,816
            )
            
            (10,375,107
            )Basic
                and diluted loss per share
            
            $
            (0.99
            )
            $
            (1.30
            )




** 8.*Mortgages
        Payable*


At
      September 30, 2008, the Company had mortgage debt totaling approximately $239.0
      million as follows:




Property
            
            Loan Amount
            
            Interest Rate
            
            Maturity Date
            
            Amount Due at MaturitySt.
                Augustine
            
            $
            26,820,623
            
            
            6.09
            %
            
            April 2016
            
            $
            23,747,523Oakview
                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)
            
            
            11,626,780
            
            
            LIBOR
                + 1.75
            %
            
            April 2009
            
            
            11,626,780Camden
                Multi Family Properties - (Five Individual Loans)
            
            
            79,268,800
            
            
            5.44
            %
            
            December 2014
            
            
            74,955,771Southeastern
                Michigan Multi Family Properties
            
            
            40,725,000
            
            
            5.96
            %
            
            July 2016
            
            
            38,138,605Total
                of eleven outstanding mortgage loans at September 30, 2008
            
            $
            238,966,203
            
            
            
            
            
            
            
            $
            223,608,801





LIBOR
      at
      September 30, 2008 was 3.9263%. Monthly installments of interest only were
      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, at which time 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:





**Remainder**
              **of
                2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**
            
            **Thereafter**
            
            **Total**Mortgage
                Payable
            
            $
            82,412
            
            $
            11,964,832
            
            $
            359,526
            
            $
            1,586,956
            
            $
            2,781,012
            
            $
            222,191,465
            
            $
            238,966,203





Lightstone
      Holdings, LLC (“the Guarantor”), a company wholly owned by the Advisor, has
      guaranteed to the extent of a $27.2 million mortgage loan on the St. Augustine
      Outlet Mall, in St. Augustine, Florida, 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, the Guarantor has guaranteed the payment of any
      unpaid loan amounts.  The Company has agreed, to the maximum extent
      permitted by its Charter, to indemnify the Guarantor for any liability
      that it incurs under this guaranty.





Pursuant
      to the Company’s loan agreements, escrows in the amount of $10.0 million were
      held in restricted escrow accounts at September 30, 2008. 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 Sugarland and Katy Highway Extended
      Stay
      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 included up to an additional $2.8
      million of renovation proceeds which will be borrowed as the renovation
      proceeds. At September 30, 2008 available renovation proceeds totaled $1.2
      million




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 matured on October 16, 2008 and the Company exercised its 6-month extension
      option described above. The entire principal balance, together with all accrued
      and unpaid interest and all other amounts payable there under will be due on
      April 16, 2009. The mortgage loan is secured by the hotels and will be
      non-recourse to the Company.





17





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


**Notes
      to the Consolidated Financial Statements**


(continued)





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,
      Gulf
      Coast Industrial Portfolio, and Southeastern Michigan multifamily properties.
      The Company was in compliance with its financial covenants at September 30,
      2008.





Interest
      costs capitalized during the three and nine months ended September 30, 2008
      amounted to $0.2 million and $0.4 million, respectively, no interest was
      capitalized during these periods in 2007.




**9.
        *Note Payable***




On
      December 5, 2007, the Company entered into a construction loan to fund the
      development of the Brazos Crossing Power Center, in Lake Jackson, Texas. 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 guaranteed
      by the Company. The balance at September 30, 2008 and December 31, 2007 was
      $7.4
      million and $5.8 million, respectively. The construction phase of the loan
      matures on December 4, 2008, while the term phase of the loan matures on
      December 5, 2009. We believe we are in compliance with the terms required to
      enter the term phase of the loan.




*****10.**Intangible Assets***




At
      September 30, 2008, 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.




The
      following table sets forth the Company’s intangible assets as of September 30,
      2008 and December 31, 2007:





At September 30, 2008
            
            At December 31, 2007Cost
            
            Amortization
            
            Net
            
            Cost
            
            Amortization
            
            NetAcquired
                in-place lease intangibles
            
            **$**
            3,062,927
            
            **$**
            (1,734,649
            )
            **$**
            1,328,278
            
            $
            4,628,921
            
            $
            (2,646,629
            )
            $
            1,982,292Acquired
                above market lease intangibles
            
            
            1,182,182
            
            
            (654,043
            )
            
            528,139
            
            
            1,203,902
            
            
            (373,175
            )
            
            830,727Acquired
                leasing costs
            
            
            1,556,681
            
            
            (764,352
            )
            
            792,329
            
            
            1,758,805
            
            
            (605,093
            )
            
            1,153,712Acquired
                below market lease intangibles
            
            **$**
            3,504,426
            
            **$**
            (2,047,648
            )
            **$**
            1,456,778
            
            **$**
            4,266,726
            
            **$**
            (1,874,843
            )
            **$**
            2,391,883





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 September 30, 2008:





Balance of
              2008
            
            2009
            
            2010
            
            2011
            
            2012
            
            Thereafter
            
            TotalAmortization
                of:Acquired
                above market lease value
            
            $
            85,523
            
            $
            205,403
            
            $
            97,974
            
            $
            53,943
            
            $
            23,379
            
            $
            61,917
            
            $
            528,139Acquired
                below market lease value
            
            
            (232,115
            )
            
            (563,440
            )
            
            (272,971
            )
            
            (129,256
            )
            
            (88,565
            )
            
            (170,431
            )
            
            (1,456,778
            )Projected
                future net rental income decrease
            
            $
            (146,592
            )
            $
            (358,037
            )
            $
            (174,997
            )
            $
            (75,313
            )
            $
            (65,186
            )
            $
            (108,514
            )
            $
            (928,639
            )Acquired
                in-place lease value
            
            $
            171,382
            
            $
            509,334
            
            $
            227,333
            
            $
            113,783
            
            $
            73,096
            
            $
            233,350
            
            $
            1,328,278





Actual
      total amortization expense included in depreciation and amortization expense
      in
      our statements of operations was $0.3 million and $0.3 million for the three
      months ended September 30, 2008 and 2007, respectively. Actual total
      amortization expense included in depreciation and amortization expense in our
      statements of operations was $  1.1
      million and $1.0 million for the nine months ended September 30, 2008 and 2007,
      respectively. Amortization of acquired above and below market lease values
      is
      included in total revenues on our statements of operations was $0.2 million
      and
      $0.2 million for the three months ended September 30, 2008 and 2007,
      respectively. Amortization of acquired above and below market lease values
      is
      included in total revenues on our statements of operations was $0.6 million
      and
      $0.5 million for the nine months ended September 30, 2008 and 2007,
      respectively.





18




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


**Notes
      to the Consolidated Financial Statements**


(continued)




11. *Distributions
          Payable*




On
      September 15, 2008, the Company declared a dividend for the three-month period
      ending September 30, 2008. The dividend was calculated based on shareholders
      of
      record each day during this three-month period at a rate of $0.0019178 per
      day,
      and equaled a daily amount that, if paid each day for a 365-day period, would
      equal a 7.0% annualized rate based on a share price of $10.00. The September
      30,
      2008 dividend was paid in full in October 2008 using a combination of cash
      ($2.4
      million) and shares ($2.1 million) which represents 218,152 shares of the
      Company’s common stock issued pursuant to the Company’s Distribution
      Reinvestment Program, at a discounted price of $9.50 per share.   The
      amount of dividends distributed to our stockholders in the future will be
      determined by our Board of Directors and is 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.





In
      addition, 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. The distribution for the third
      quarter 2008 in the amount of $0.4 million was not been paid in October 2008.
      Such distributions, paid current at a 7% annualized rate of return to Lightstone
      SLP, LLC through September 30, 2008 and will always be subordinated until
      stockholders receive a stated preferred return.




*12.Stockholders’
          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
      September 30, 2008 and December 31, 2007, the Lightstone REIT had 18,620
      and zero outstanding preferred shares, respectively.


As
      described in Note 3, in exchange for the Mill Run Interest, the Operating
      Partnership issued (i) 96,000 units of common limited partnership interest
      in
      the Operating Partnership (“Common Units”) and 18,240 Series A preferred limited
      partnership units in the Operating Partnership (the “Preferred Units”) with an
      aggregate liquidation preference of $18,240,000 to Arbor JRM and (ii) 2,000
      Common Units and 380 Preferred Units with an aggregate liquidation preference
      of
      $380,000 to Arbor CJ. The total aggregate value of the Common Units and
      Preferred Units issued by the Operating Partnership in exchange for the Mill
      Run
      Interest was $19,600,000.





The
      Series A Preferred Units shall have no mandatory redemption or maturity date.
      The Series A Preferred Units shall not be redeemable by the Partnership prior
      to
      the Lockout Date of June 26, 2013. On or after the Lockout Date, the Series
      A
      Preferred Units may be redeemed at the option of the Partnership (which notice
      may be delivered prior to the Lockout Date as long as the redemption does not
      occur prior to the Lockout Date), in whole but not in part, on thirty (30)
      days’
prior written notice at the option of the Partnership, at a redemption price
      per
      Series A Preferred Unit equal to the sum of the Series A Liquidation Preference
      plus an amount equal to all distributions (whether or not earned or declared)
      accrued and unpaid thereon to the date of redemption, and the redemption price
      shall be payable in cash. During any redemption notice period, the holders
      of
      the Series A Preferred Units shall retain any conversion rights with respect
      to
      the Series A Preferred Units. The Series A Preferred Units shall not be subject
      to any sinking fund or other obligation of the Partnership to redeem or retire
      the Series A Preferred Units.




***Common
      Shares***




All
      of
      the common stock being offered by the Lightstone REIT is duly authorized and
      will be 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.





19





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


**Notes
      to the Consolidated Financial Statements**


(continued)





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




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





Under
      its
      charter, the Lightstone REIT cannot make some material changes to its business
      form or operations without the approval of stockholders holding at least a
      majority of the shares of our stock entitled to vote on the matter. These
      include (1) amendment of its charter, (2) its liquidation or dissolution, (3)
      its reorganization, and (4) its merger, consolidation or the sale or other
      disposition of its assets. Share exchanges in which the Lightstone REIT is
      the
      acquirer, however, do not require stockholder approval. The Lightstone REIT
      had
      approximately 29.4 million and 13.6 million shares of common stock outstanding
      as of September 30, 2008 and December 31, 2007, respectively.




***Dividends***





The
      Board of Directors of the Lightstone REIT declared a dividend for each quarter
      in 2006, 2007, and 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. The September 30, 2008
      dividend was paid in full in October 2008 using a combination of cash ($2.4
      million), and ($2.1 million) which represent 218,152 shares of the Company’s
      common stock issued pursuant to the Company’s Distribution Reinvestment Program,
      shares of the Company’s stock at a discounted price of $9.50 per share. In
      addition, the Company declared a dividend on the special general partner
      interests held by our sponsor in the amount of $0.4 million, which was paid
      in
      October 2008.





**Stock-Based
      Compensation**





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 stockholder’s meeting. In July, 2007 options to purchase
      3,000 shares were granted to each of our three independent directors at the
      annual stockholders meeting. At the annual stockholders meeting in August 2008
      additional options for the purchase of 3,000 shares were granted to each of
      our
      three independent directors. As of September 30, 2008, options to purchase
      18,000 shares of stock were outstanding, none of which are fully vested, at
      an
      exercise price of $10.





The
      exercise price for all stock options granted under our stock option plan is
      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
      is 10 years. Options granted to non-employee directors 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.
      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.





Compensation
      expense associated with our stock option plan was not material for the nine
      months ended September 30, 2008 and 2007.





20





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


**Notes
      to the Consolidated Financial Statements**


(continued)




***13.
          Related Party Transactions***





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





**Fees**
            
            **Amount**Selling
                Commission
            
            The
                Dealer Manager will be paid up to 7% of the gross offering proceeds
                before
                reallowance of commissions earned by participating broker-dealers.
                Selling
                commissions are expected to be approximately $21,000,000 if the maximum
                offering of 30 million shares is sold.Dealer
                Management Fee
            
            The
                Dealer Manager will be paid up to 1% of gross offering proceeds before
                reallowance to participating broker-dealers. The estimated dealer
                management fee is expected to be approximately $3,000,000 if the
                maximum
                offering of 30 million shares is sold.Soliciting
                Dealer Warrants
            
            The
                Dealer Manager may buy up to 600,000 warrants at a purchase price
                of
                $.0008 per warrant. Each warrant will be exercisable for one share
                of the
                Lightstone REIT’s common stock at an exercise price of $12.00 per
                share.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%.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 separate fees for i)
                development of, ii) one-time initial rent-up, iii) 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 preceding
                quarter.




21





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


**Notes
      to the Consolidated Financial Statements**


(continued)





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 $0.4 million were declared and
      $0.3
      million were paid during the three months ended September 30, 2008.
      Distributions for the first quarter of 2007 were not declared until the third
      quarter of 2007. The distribution for the second quarter 2008 in the amount
      of
      $0.4 million was paid in July 2008. Such distributions, paid current at a 7%
      annualized rate of return to Lightstone SLP, LLC through September 30, 2008
      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:





**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.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.




**Liquidating Stage**
              **Distributions**
            
            **Amount of Distribution**7% Stockholder Return
                Threshold
            
            Once
                stockholders have received liquidation distributions, and a cumulative
                non-compounded 7% return per year on their initial net investment,
                Lightstone SLP, LLC will receive available distributions until it
                has
                received an amount equal to its initial purchase price of the special
                general partner interests plus a cumulative non-compounded return
                of 7%
                per year.




12%
                Stockholder Return Threshold
            
            Once
                stockholders have received liquidation distributions, and a cumulative
                non-compounded return of 12% per year on their initial net investment
                (including amounts equaling a 7% return on their net investment as
                described above), 70% of the aggregate amount of any additional
                distributions from the Operating Partnership will be payable to the
                stockholders, and 30% of such amount will be payable to Lightstone
                SLP,
                LLC.Returns
                in Excess of 12%
            
            After
                stockholders and Lightstone LP, LLC have received liquidation
                distributions, and a cumulative non-compounded return of 12% per
                year on
                their initial net investment, 60% of any remaining distributions
                from the
                Operating Partnership will be distributable to stockholders, and
                40% of
                such amount will be payable to Lightstone SLP,
                LLC.




22





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


**Notes
      to the Consolidated Financial Statements**


(continued)





The
      Lightstone REIT pursuant to the arrangements described above has recorded the
      following amounts for the three months ended September 30, 2008 and
      2007:




**Three Months Ended**
            
            **Three Months Ended****September 30, 2008**
            
            **September 30, 2007**Acquisition fees
            
            $
            -
            
            $
            -Asset
                management fees
            
            
            560,170
            
            
            189,731Property
                management fees
            
            
            432,814
            
            
            251,160Acquisition
                expenses reimbursed to Advisor
            
            
            -
            
            
            -Development
                fees
            
            
            556,390
            
            
            -Leasing
                commissions
            
            
            89,065
            
            
            114,210Total
            
            **$**
            **1,638,439**
            
            **$**
            **555,101**








The
      Lightstone REIT pursuant to the arrangements described above has recorded the
      following amounts for the nine months ended September 30, 2008 and
      2007:




**Nine Months Ended**
            
            **Nine Months Ended****September 30, 2008**
            
            **September 30, 2007**Acquisition
                fees
            
            $
            2,336,565
            
            $
            3,400,396Asset
                management fees
            
            
            1,582,009
            
            
            520,610Property
                management fees
            
            
            1,264,879
            
            
            721,031Acquisition
                expenses reimbursed to Advisor
            
            
            1,265,528
            
            
            -Development
                fees
            
            
            556,390
            
            
            -Leasing
                commissions
            
            
            485,405
            
            
            179,085Total
            
            **$**
            **7,490,776**
            
            **$**
            **4,821,122**




*14.Segment
          Information*


The
      Company currently operates in five business segments as of September 30,
      2008: (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 three and nine months ended September
      30, 2008 and 2007 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 September 30, 2008 and 2007. The
      accounting policies of the segments are the same as those described in Note
      2:
      Summary of Significant Accounting Policies, excluding depreciation and
      amortization. Unallocated assets, liabilities, revenues and expense relate
      to
      corporate related accounts.





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





Selected
      results of operations for the three months ended September 30, 2008 regarding
      the Company’s operating segments are as follows:




**Retail**
            
            **Multi Family**
            
            **Industrial**
            
            **Hospitality**
            
            **Office**
            
            **Corporate**
            
            **Three Months Ended**
              **September 30, 2008**Revenues:Rental
                income
            
            $
            1,568,878
            
            $
            4,947,287
            
            $
            1,613,355
            
            $
            1,061,660
            
            $
            -
            
            $
            -
            
            $
            9,191,180Tenant
                recovery income
            
            
            501,490
            
            
            233,643
            
            
            335,020
            
            
            5,520
            
            
            -
            
            
            -
            
            
            1,075,6732,070,368
            
            
            5,180,930
            
            
            1,948,375
            
            
            1,067,180
            
            
            -
            
            
            -
            
            
            10,266,853Expenses:Property
                operating expenses
            
            
            699,427
            
            
            2,510,043
            
            
            716,383
            
            
            786,610
            
            
            -
            
            
            -
            
            
            4,712,463Real
                estate taxes
            
            
            225,310
            
            
            521,371
            
            
            241,072
            
            
            43,184
            
            
            -
            
            
            -
            
            
            1,030,937General
                and adminsitrative costs
            
            
            1,244
            
            
            596,693
            
            
            15,931
            
            
            16,199
            
            
            -
            
            
            705,118
            
            
            1,335,185Depreciation
                and amortization
            
            
            583,477
            
            
            746,018
            
            
            690,773
            
            
            116,605
            
            
            -
            
            
            -
            
            
            2,136,873Operating
                expenses
            
            
            1,509,458
            
            
            4,374,125
            
            
            1,664,159
            
            
            962,598
            
            
            -
            
            
            705,118
            
            
            9,215,458Net
                property operations
            
            
            560,910
            
            
            806,805
            
            
            284,216
            
            
            104,582
            
            
            -
            
            
            (705,118
            )
            
            1,051,395Other
                income/(expense)
            
            
            6,054
            
            
            113,063
            
            
            1,939
            
            
            (183
            )
            
            -
            
            
            -
            
            
            120,873Interest
                income
            
            
            3,825
            
            
            259
            
            
            152
            
            
            2,420
            
            
            -
            
            
            1,543,777
            
            
            1,550,433Interest
                expense
            
            
            (769,756
            )
            
            (1,759,310
            )
            
            (798,609
            )
            
            (165,127
            )
            
            -
            
            
            -
            
            
            (3,492,802
            )Loss
                from investments in unconsolidated real estate entities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (676,194
            )
            
            -
            
            
            (676,194
            )Loss
                on sale of equity securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,454
            )
            
            (7,454
            )Other
                than temporary impairment-marketable securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,733,015
            )
            
            (9,733,015
            )Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            173
            
            
            173Net
                loss applicable to common shares
            
            $
            (198,967
            )
            $
            (839,183
            )
            $
            (512,302
            )
            $
            (58,308
            )
            $
            (676,194
            )
            $
            (8,901,637
            )
            $
            (11,186,591
            )




23





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


**Notes
      to the Consolidated Financial Statements**


(continued)





Selected
      results of operations for the three months ended September 30, 2007 regarding
      the Company’s operating segments are as follows:





**Retail**
            
            **Multi Family**
            
            **Industrial**
            
            **Hospitality**
            
            **Office**
            
            **Corporate**
            
            **Three Months Ended**
              **September 30, 2007**Revenues:Rental
                income
            
            $
            1,506,763
            
            $
            1,954,003
            
            $
            1,625,358
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            5,086,124Tenant
                recovery income
            
            
            531,587
            
            
            18,778
            
            
            415,473
            
            
            -
            
            
            -
            
            
            -
            
            
            965,8382,038,350
            
            
            1,972,781
            
            
            2,040,831
            
            
            -
            
            
            -
            
            
            -
            
            
            6,051,962Expenses:Property
                operating expenses
            
            
            676,681
            
            
            957,250
            
            
            696,462
            
            
            -
            
            
            -
            
            
            -
            
            
            2,330,393Real
                estate taxes
            
            
            241,219
            
            
            231,469
            
            
            183,938
            
            
            -
            
            
            -
            
            
            -
            
            
            656,626General
                and adminsitrative costs
            
            
            60
            
            
            66,906
            
            
            5,903
            
            
            -
            
            
            -
            
            
            327,108
            
            
            399,977Depreciation
                and amortization
            
            
            545,372
            
            
            222,542
            
            
            698,919
            
            
            -
            
            
            -
            
            
            -
            
            
            1,466,833Operating
                expenses
            
            
            1,463,332
            
            
            1,478,167
            
            
            1,585,222
            
            
            -
            
            
            -
            
            
            327,108
            
            
            4,853,829Net
                property operations
            
            
            575,018
            
            
            494,614
            
            
            455,609
            
            
            -
            
            
            -
            
            
            (327,108
            )
            
            1,198,133Other
                income/(expense)
            
            
            41,538
            
            
            207,609
            
            
            2,253
            
            
            -
            
            
            -
            
            
            (518,466
            )
            
            (267,066
            )Interest
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,147,106
            
            
            1,147,106Loss
                on sale of equity securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                than temporary impairment-marketable securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Interest
                expense
            
            
            (815,807
            )
            
            (626,004
            )
            
            (798,609
            )
            
            -
            
            
            -
            
            
            -
            
            
            (2,240,420
            )Loss
                from investments in unconsolidated real estate entities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,721,940
            )
            
            -
            
            
            (1,721,940
            )Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (24
            )
            
            (24
            )Net
                loss applicable to common shares
            
            $
            (199,251
            )
            $
            76,219
            
            $
            (340,747
            )
            $
            -
            
            $
            (1,721,940
            )
            $
            301,508
            
            $
            (1,884,211
            )





Selected
      results of operations for the nine months ended September 30, 2008, and selected
      asset information regarding the Company’s operating segments are as
      follows:





**Retail**
            
            **Multi Family**
            
            **Industrial**
            
            **Hospitality**
            
            **Office**
            
            **Corporate**
            
            **Nine Months Ended**
              **September 30, 2008**Revenues:Rental
                income
            
            $
            4,642,203
            
            $
            14,587,157
            
            $
            4,891,210
            
            $
            2,720,886
            
            $
            -
            
            $
            -
            
            $
            26,841,456Tenant
                recovery income
            
            
            1,436,877
            
            
            675,275
            
            
            1,009,223
            
            
            15,251
            
            
            -
            
            
            -
            
            
            3,136,6266,079,080
            
            
            15,262,432
            
            
            5,900,433
            
            
            2,736,137
            
            
            -
            
            
            -
            
            
            29,978,082Expenses:Property
                operating expenses
            
            
            1,983,111
            
            
            7,519,823
            
            
            1,785,204
            
            
            1,663,787
            
            
            -
            
            
            -
            
            
            12,951,925Real
                estate taxes
            
            
            676,327
            
            
            1,566,345
            
            
            736,053
            
            
            138,839
            
            
            -
            
            
            -
            
            
            3,117,564General
                and adminsitrative costs
            
            
            43,215
            
            
            858,278
            
            
            74,725
            
            
            24,234
            
            
            -
            
            
            7,298,932
            
            
            8,299,384Depreciation
                and amortization
            
            
            1,780,757
            
            
            2,225,018
            
            
            2,202,144
            
            
            331,668
            
            
            -
            
            
            -
            
            
            6,539,587Operating
                expenses
            
            
            4,483,410
            
            
            12,169,464
            
            
            4,798,126
            
            
            2,158,528
            
            
            -
            
            
            7,298,932
            
            
            30,908,460Net
                property operations
            
            
            1,595,670
            
            
            3,092,968
            
            
            1,102,307
            
            
            577,609
            
            
            -
            
            
            (7,298,932
            )
            
            (930,378
            )Other
                income/(expense)
            
            
            18,010
            
            
            350,054
            
            
            24,610
            
            
            (7,162
            )
            
            -
            
            
            -
            
            
            385,512Interest
                income
            
            
            22,632
            
            
            633
            
            
            3,187
            
            
            2,420
            
            
            -
            
            
            3,499,284
            
            
            3,528,156Interest
                expense
            
            
            (2,368,566
            )
            
            (5,240,489
            )
            
            (2,378,653
            )
            
            (485,314
            )
            
            -
            
            
            -
            
            
            (10,473,022
            )Loss
                from investments in unconsolidated real estate entities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,236,511
            )
            
            -
            
            
            (2,236,511
            )Loss
                on sale of equity securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,454
            )
            
            (7,454
            )Other
                than temporary impairment-marketable securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,733,015
            )
            
            (9,733,015
            )Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            322
            
            
            322Net
                loss applicable to common shares
            
            $
            (732,254
            )
            $
            (1,796,834
            )
            $
            (1,248,549
            )
            $
            87,553
            
            $
            (2,236,511
            )
            $
            (13,539,795
            )
            $
            (19,466,390
            )**Balance
                sheet financial data at September 30, 2008:**Real
                estate assets, net
            
            $
            88,014,231
            
            $
            139,120,997
            
            $
            75,862,699
            
            $
            17,822,978
            
            $
            -
            
            $
            -
            
            $
            320,820,905Restricted
                escrows
            
            
            6,589,752
            
            
            2,191,531
            
            
            1,222,002
            
            
            -
            
            
            -
            
            
            -
            
            
            10,003,285Investments
                in unconsolidated real estate entities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            23,648,164
            
            
            -
            
            
            23,648,164Investment
                in affiliate, at cost
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10,150,000
            
            
            -
            
            
            10,150,000Deposit
                for real estate purchase
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Due
                from Affiliate
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Tenant
                and other accounts receivable
            
            
            701,131
            
            
            236,294
            
            
            514,294
            
            
            120,877
            
            
            -
            
            
            -
            
            
            1,572,596Note
                Receivable
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            49,500,000
            
            
            49,500,000Acquired
                in-place lease intangibles, net
            
            
            830,616
            
            
            -
            
            
            497,662
            
            
            -
            
            
            -
            
            
            -
            
            
            1,328,278Acquired
                above market lease intangibles, net
            
            
            323,695
            
            
            21,105
            
            
            183,339
            
            
            -
            
            
            -
            
            
            -
            
            
            528,139Deferred
                leasing costs, net
            
            
            867,946
            
            
            -
            
            
            486,654
            
            
            -
            
            
            -
            
            
            -
            
            
            1,354,600Deferred
                financing costs, net
            
            
            551,189
            
            
            949,141
            
            
            286,512
            
            
            27,066
            
            
            -
            
            
            413,535
            
            
            2,227,443Other
                assets
            
            
            340,514
            
            
            887,004
            
            
            168,845
            
            
            454,366
            
            
            -
            
            
            1,291,873
            
            
            3,142,602Non-segmented
                assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            83,680,301
            
            
            83,680,301Total
                Assets
            
            $
            98,219,074
            
            $
            143,406,072
            
            $
            79,222,007
            
            $
            18,425,287
            
            $
            33,798,164
            
            $
            134,885,709
            
            $
            507,956,313Mortgage
                Payable
            
            $
            54,320,623
            
            $
            119,993,800
            
            $
            53,025,000
            
            $
            11,626,779
            
            $
            -
            
            $
            -
            
            $
            238,966,203Note
                Payable
            
            
            7,416,941
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            7,416,941




24




**LIGHTSTONE
        VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
        SUBSIDIARIES**
 **Notes
        to the Consolidated Financial Statements**
 (continued)





Selected
      results of operations for the nine months ended September 30, 2007, and selected
      asset information regarding the Company’s operating segments are as
      follows:





**Retail**
            
            **Multi Family**
            
            **Industrial**
            
            **Hospitality**
            
            **Office**
            
            **Corporate**
            
            **Nine Months Ended**
              **September 30, 2007**Revenues:Rental
                income
            
            $
            4,350,112
            
            $
            5,858,191
            
            $
            4,351,793
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            14,560,096Tenant
                recovery income
            
            
            1,584,129
            
            
            63,057
            
            
            1,066,758
            
            
            -
            
            
            -
            
            
            -
            
            
            2,713,9445,934,241
            
            
            5,921,248
            
            
            5,418,551
            
            
            -
            
            
            -
            
            
            -
            
            
            17,274,040Expenses:Property
                operating expenses
            
            
            1,933,796
            
            
            2,933,476
            
            
            1,370,635
            
            
            -
            
            
            -
            
            
            -
            
            
            6,237,907Real
                estate taxes
            
            
            690,196
            
            
            683,329
            
            
            490,421
            
            
            -
            
            
            -
            
            
            -
            
            
            1,863,946General
                and adminsitrative costs
            
            
            60
            
            
            169,209
            
            
            5,903
            
            
            -
            
            
            1,643,950
            
            
            1,045,937
            
            
            2,865,059Depreciation
                and amortization
            
            
            1,684,058
            
            
            908,821
            
            
            1,868,653
            
            
            -
            
            
            -
            
            
            -
            
            
            4,461,532Operating
                expenses
            
            
            4,308,110
            
            
            4,694,835
            
            
            3,735,612
            
            
            -
            
            
            1,643,950
            
            
            1,045,937
            
            
            15,428,444Net
                property operations
            
            
            1,626,131
            
            
            1,226,413
            
            
            1,682,939
            
            
            -
            
            
            (1,643,950
            )
            
            (1,045,937
            )
            
            1,845,596Other
                income/(expense)
            
            
            89,496
            
            
            597,475
            
            
            13,337
            
            
            -
            
            
            -
            
            
            (84,797
            )
            
            615,511Interest
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,147,106
            
            
            1,147,106Loss
                on sale of equity securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                than temporary impairment-marketable securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Interest
                expense
            
            
            (2,436,527
            )
            
            (1,857,787
            )
            
            (2,101,920
            )
            
            -
            
            
            -
            
            
            -
            
            
            (6,396,234
            )Loss
                from investments in unconsolidated real estate entities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,910,940
            )
            
            -
            
            
            (5,910,940
            )Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            168
            
            
            168Net
                loss applicable to common shares
            
            $
            (720,900
            )
            $
            (33,899
            )
            $
            (405,644
            )
            $
            -
            
            $
            (7,554,890
            )
            $
            16,540
            
            $
            (8,698,793
            )**Balance
                sheet financial data at September 30, 2007:**Real
                estate assets, net
            
            $
            62,225,181
            
            $
            41,564,402
            
            $
            63,487,813
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            167,277,396Restricted
                escrows
            
            
            5,920,605
            
            
            1,654,165
            
            
            1,764,476
            
            
            -
            
            
            -
            
            
            -
            
            
            9,339,246Investments
                in unconsolidated real estate entities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            7,565,245
            
            
            -
            
            
            7,565,245Deposit
                for real estate purchase
            
            
            275,000
            
            
            -
            
            
            12,428,195
            
            
            500,000
            
            
            -
            
            
            -
            
            
            13,203,195Due
                from Affiliate
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Tenant
                and other accounts receivable
            
            
            669,463
            
            
            146,095
            
            
            214,855
            
            
            -
            
            
            -
            
            
            42,571
            
            
            1,072,984Acquired
                in-place lease intangibles, net
            
            
            1,174,800
            
            
            -
            
            
            1,060,622
            
            
            -
            
            
            -
            
            
            -
            
            
            2,235,422Acquired
                above market lease intangibles, net
            
            
            483,663
            
            
            -
            
            
            309,776
            
            
            -
            
            
            -
            
            
            -
            
            
            793,439Deferred
                leasing costs, net
            
            
            712,904
            
            
            -
            
            
            740,954
            
            
            -
            
            
            -
            
            
            -
            
            
            1,453,858Deferred
                financing costs, net
            
            
            442,063
            
            
            200,112
            
            
            320,893
            
            
            -
            
            
            -
            
            
            -
            
            
            963,068Other
                assets
            
            
            68,654
            
            
            695,855
            
            
            153,556
            
            
            -
            
            
            -
            
            
            236,272
            
            
            1,154,337Non-segmented
                assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            54,223,618
            
            
            54,223,618Total
                Assets
            
            $
            71,972,333
            
            $
            44,260,629
            
            $
            80,481,140
            
            $
            500,000
            
            $
            7,565,245
            
            $
            54,502,461
            
            $
            259,281,808Mortgage
                Payable
            
            $
            54,629,210
            
            $
            40,725,000
            
            $
            53,025,000
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            148,379,210Note
                Payable
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -




*15.Legal
          Proceedings*


From
      time to time in the ordinary course of business, the Company 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.




25




**LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND
          SUBSIDIARIES**
 **Notes
          to the Consolidated Financial Statements**
 (continued)


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 of 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.





26




**PART
      I. FINANCIAL INFORMATION, CONTINUED:**


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




The
      following discussion and analysis should be read in conjunction with the
      accompanying financial statements of Lightstone Value Plus Real Estate
      Investment Trust, Inc. and the notes thereto. As used herein, the terms “we,”
“our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust,
      Inc., a Maryland corporation, and, as required by context, Lightstone Value
      Plus
      REIT, L.P. and its wholly owned subsidiaries, which we collectively refer to
      as
“the Operating Partnership.”




**Forward-Looking
      Statements**




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





Such
      statements are based on assumptions and expectations which may not be realized
      and are inherently subject to risks and uncertainties, many of which cannot
      be
      predicted with accuracy and some of which might not even be anticipated. Future
      events and actual results, financial and otherwise, may differ from the results
      discussed in the forward-looking statements.





Risks
      and
      other factors that might cause differences, some of which could be material,
      include, but are not limited to, economic and market conditions, competition,
      tenant or joint venture partner(s) bankruptcies, failure to increase tenant
      occupancy and operating income, rejection of leases by tenants in bankruptcy,
      financing and development risks, construction and lease-up delays, cost
      overruns, the level and volatility of interest rates, the rate of revenue
      increases versus expense increases, the financial stability of various tenants
      and industries, the failure of the Company (defined herein) to make additional
      investments in real estate properties, the failure to upgrade our tenant mix,
      restrictions in current financing arrangements, the failure to fully recover
      tenant obligations for common area maintenance (“CAM”), insurance, taxes and
      other property expenses, the failure of the Lightstone REIT to continue to
      qualify as a real estate investment trust (“REIT”), the failure to refinance
      debt at favorable terms and conditions, an increase in impairment charges,
      loss
      of key personnel, failure to achieve earnings/funds from operations targets
      or
      estimates, conflicts of interest with the Advisor and its affiliates, failure
      of
      joint venture relationships, significant costs related to environmental issues
      as well as other risks listed from time to time in this Form 10-Q, our Form
      10-K, our Registration Statement on Form S-11 (File No. 333-117367), as the
      same
      may be amended and supplemented from time to time, and in the Company’s other
      reports filed with the Securities and Exchange Commission (“SEC”).




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





27




**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
      September 30, 2008, Lightstone REIT has completed ten acquisitions: the St.
      Augustine Outlet Center, a retail outlet shopping mall in St. Augustine,
      Florida, on March 31, 2006; the Southeast Michigan Apartments, four multi-family
      communities in Southeast Michigan on June 29, 2006; the Oakview Power Center,
      a
      retail shopping mall located in Omaha, Nebraska, on December 21, 2006; 1407
      Broadway, 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,
      New York, on January 4, 2007; the Gulf States Industrial portfolio, a portfolio
      of 12 industrial and 2 office buildings in Louisiana and Texas, on February
      1, 2007; and has developed the Brazos Crossing Power Center after acquiring
      a
      land parcel in Lake Jackson, Texas, on June 29, 2007, the Sugarland and Katy
      Highway Extended Stay Hotels in Houston, Texas on October 17, 2007, the
      Southeast Apartments, which included, five multi family apartment communities,
      one in Tampa, Florida, two in Greensboro, North Carolina and two in Charlotte,
      North Carolina on November 16, 2007, the Sarasota Industrial Property, an
      industrial building in Sarasota, Florida on November 13, 2007, and on June
      26,
      2008, the Company acquired an interest in an entity with an interest in two
      outlet malls in Orlando, Florida.





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.





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, 2008, 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 and the period ended September 30,
      2008.




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 September 30, 2008, cumulative gross
      offering proceeds of approximately $290.0 million have been released to the
      Lightstone REIT and used for the purchase of a 99.99% general partnership
      interest in the Operating Partnership. The 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.





28




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 September 30, 2008, offering costs were
      $29.0 million and were offset by $28.5 million of proceeds from the sale of
      SLP
      Units of which $3.2 million had yet been funded. The Advisor intends to offset
      this obligation with a portion of the $9.7 million acquisition fee to be paid
      to
      the Advisor upon the Company’s settlement of its acquisition of the 25%
      membership interest in Prime Outlets Acquisitions Company.




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 September 30, 2008, 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 September 30, 2008, offering costs incurred
      were approximately 10%.





Current
      economic conditions may cause a decline in business and consumer spending which
      could adversely affect our business and financial performance. Our operating
      results are impacted by the health of the North American economies. Our business
      and financial performance, including collection of our accounts receivable,
      recoverability of assets including investments, may be adversely affected by
      current and future economic conditions, such as a reduction in the availability
      of credit, financial market volatility, and recession.





We
      are
      not aware of any other 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.




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, and September 30, 2008 the Company has
      complied with the requirements for maintaining its REIT status.





29




**Portfolio
      Summary**





**Location**
            
            **Year Built (Range**
              **of years built)**
            
            **Leasable**
              **Square Feet**
            
            **Percentage**
              **Occupied as of**
              **9/30/08**
            
            **Revenues based on**
              **rents at**
              **September 30, 2008****Wholly-Owned
                Real Estate Properties:**St.
                Augustine Outlet Mall **(2)**
            
            
            St.
                Augstine, FL
            
            
            1998
            
            
            251,186
            
            
            55.7
            %
            $
            2.3
                millionOakview
                Power Center
            
            
            Omaha,
                NE
            
            
            1999
                - 2005
            
            
            177,331
            
            
            99.2
            %
            $
            2.5
                million7
                Flex/Office/Industrial Buildings from the Gulf States Industrial
                portfolio
            
            
            New
                Orleans, LA
            
            
            1980-2000
            
            
            339,700
            
            
            92.3
            %
            $
            3.2
                million4
                Flex/Industrial Buildings from the Gulf States Industrial
                portfolio
            
            
            San
                Antonio, TX
            
            
            1982-1986
            
            
            484,260
            
            
            74.9
            %
            $
            1.7
                million3
                Flex/Industrial Buildings from the Gulf States Industrial
                portfolio
            
            
            Baton
                Rouge, LA
            
            
            1985-1987
            
            
            182,792
            
            
            100.0
            %
            $
            1.2
                millionBrazos
                Crossing Power Center **(1)**
            
            
            Lake
                Jackson, TX
            
            
            2007-2008
            
            
            61,213
            
            
            100.0
            %
            $
            0.8
                millionSarasota
                Industrial Property
            
            
            Sarasota,
                FL
            
            
            1992
            
            
            281,276
            
            
            0.0
            %
            
            -**Portfolio
                total**
            
            
            
            
            
            **1,777,758**
            
            
            **69.5**
            **%**




**(1)**Opened March 2008**(2)**Currently
                undergoing expansion/renovation, 72.53% occupied including temporary
                tenants




**Location**
            
            **Year Built (Range**
              **of years built)**
            
            **Leasable**
              **Units**
            
            **Percentage**
              **Occupied as of**
              **9/30/08**
            
            **Revenues based on**
              **rents at**
              **September 30, 2008**Michigan
                Apartments (Four Multi Family Apartment Buildings)
            
            
            Southeast
                MI
            
            
            1965-1972
            
            
            1,017
            
            
            92.0
            %
            $
            7.9
                millionSoutheast
                Apartments (Five Multi Family Apartment Buildings)
            
            
            Greensboro
                and Charlotte, NC/Tampa, FL
            
            
            1980-1987
            
            
            1,576
            
            
            90.5
            %
            $
            10.6
                million**Portfolio
                total**
            
            
            
            
            
            **2,593**
            
            
            **91.1**
            %




**Location**
            
            **Year Built**
            
            **Available**
              **Rooms**
            
            **Occupancy**
              **Percentage as of**
              **9/30/08**
            
            **Revenue per**
              **Available Room at**
              **9/30/08****Wholly-Owned Operating Properties:**
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **(3**)Sugarland
                and Katy Highway Extended Stay Hotels
            
            
            Houston,
                TX
            
            
            1998
            
            
            26,715
            
            
            72.4
            %
            $
            40




**(3)**Currently
                undergoing renovations.




**Location**
            
            **Year Built**
            
            **Leasable**
              **Square Feet**
            
            **Percentage**
              **Occupied as of**
              **9/30/08**
            
            **Annualized**
              **Revenues based on**
              **rents at**
              **September 30, 2008****Unconsolidated Joint Venture
                  Properties:**1407
                Broadway
            
            
            New
                York, NY
            
            
            1952
            
            
            940,364
            
            
            83.8
            %
            $
            38.9
                millionOrlando
                Outlet & Design Center
            
            
            Orlando,
                FL
            
            
            
            (4)
            
            978,547
            
            
            83.1
            %
            $
            25.3
                million**Portfolio
                total**
            
            
            
            
            
            **1,918,911**
            
            
            **83.4**
            %




(4)
                Orlando Outlet Grand Opening in April 2008




30




**2008
      Acquisitions and Investments**





There
      were no acquisitions during the third quarter of 2008.





*Park
      Avenue Funding*





On
      April
      16, 2008, we made a preferred equity contribution of $11,000,000 (the “
Contribution ”) to PAF-SUB LLC (“ PAF ”), a wholly-owned subsidiary of Park
      Avenue Funding LLC (“ Park Avenue ”), in exchange for membership interests of
      PAF with certain rights and preferences described below (the “ Preferred Units
”). Park Avenue is a real estate lending company making loans, including first
      or second mortgages, mezzanine loans and collateral pledges of mortgages, to
      finance real estate transactions. Property types considered include
      multi-family, office, industrial, retail, self-storage, parking and land. Both
      PAF and Park Avenue are affiliates of our Sponsor.




PAF’s
      limited liability company agreement was amended on April 16, 2008 to create
      the
      Preferred Units and admit us as a member. The Preferred Units are entitled
      to a
      cumulative preferred distribution at the rate of 10% per annum, payable
      quarterly. In the event that PAF fails to pay such distribution when due, the
      preferred distribution rate increases to 17% per annum. The Preferred Units
      are
      redeemable, in whole or in part, at any time at the option of the Company upon
      at least 180 days’ prior written notice (the “ Redemption ”). In addition, the
      Preferred Units are entitled to a liquidation preference senior to any
      distribution upon dissolution with respect to other equity interests of PAF
      in
      an amount equal to (x) the Contribution plus any accrued but unpaid
      distributions less (y) any Redemption payments.




In
      connection with the Contribution, we entered into a guarantee agreement with
      Park Avenue on April 16, 2008, whereby Park Avenue unconditionally and
      irrevocably guarantees payment of the Redemption amounts when due (the “
Guarantee ”). Also, Park Avenue agrees to pay all costs and expenses incurred by
      the Company in connection with the enforcement of the Guarantee.





*Mill
      Run Interest*





On
      June
      26, 2008, we through our Operating Partnership, entered into Contribution and
      Conveyance Agreements between the Operating Partnership and (i) Arbor Mill
      Run
      JRM LLC, a Delaware limited liability company (“Arbor JRM”) and (ii) Arbor
      National CJ, LLC, a New York limited liability company (“Arbor CJ”), pursuant to
      which Arbor JRM and Arbor CJ contributed to the Operating Partnership an
      aggregate 22.54% membership interest (the “Mill Run Interest”) in Mill Run. The
      Mill Run Interest is a non-managing interest, with consent rights with respect
      to certain major decisions. An affiliate of The Lightstone Group, the Company’s
      sponsor, is the managing member and majority owner of Mill Run. The acquisition
      price for the Mill Run Interest was approximately $85 million, $19.6 million
      of
      which was in the form of equity and $65.4 million in the form of indebtedness
      secured by the Mill Run Properties. In connection with this transaction,
      Lightstone Value Plus REIT LLC, our advisor, received an acquisition fee equal
      to 2.75% of the acquisition price, or approximately $2.4 million. Closing costs
      totaled approximately $1.1 million. In exchange for the Mill Run Interest,
      the
      Operating Partnership issued (i) 96,000 units of common limited partnership
      interest in the Operating Partnership (“Common Units”) and 18,240 Series A
      preferred limited partnership units in the Operating Partnership (the “Preferred
      Units”) with an aggregate liquidation preference of $18,240,000 to Arbor JRM and
      (ii) 2,000 Common Units and 380 Preferred Units with an aggregate liquidation
      preference of $380,000 to Arbor CJ. The total aggregate value of the Common
      Units and Preferred Units issued by the Operating Partnership in exchange for
      the Mill Run Interest was $19,600,000.





In
      connection with the contribution of the Mill Run Interest, we made loans to
      Arbor JRM and Arbor CJ in the aggregate principal amount of $17.6 million (the
      “Mill Loans”). The Mill Loans are payable semi-annually and shall accrue
      interest at an annual rate of 4%. The Mill Loans mature on June 26, 2016 and
      contain customary events of default and default remedies. The Mill Loans require
      Arbor JRM and Arbor CJ to prepay their respective loans in full upon the
      redemption of the Preferred Units by the Operating Partnership. The Mill Loans
      are secured by the Preferred Units and Common Units issued in connection with
      the acquisition of the Mill Interest.





*Material
      Agreement to Acquire Prime Interest*





Through
      our Operating Partnership, we entered into a Contribution and Conveyance
      Agreement with AR Prime Holdings LLC, a Delaware limited liability company
      (“AR
      Prime”), pursuant to which AR Prime will contribute to the Operating Partnership
      a 25% membership interest (the “Prime Interest”) in Prime. Prime Interest is a
      non-managing interest, with certain consent rights with respect to major
      decisions. An affiliate of The Lightstone Group, the Company’s sponsor, is the
      majority owner and manager of Prime. The acquisition price for the Prime
      Interest is approximately $373 million, $55 million of which will be in the
      form
      of equity and $318 million of which will be in the form of indebtedness secured
      by the Prime Properties (18 retail outlet malls, and four development projects).
      In connection with the transaction, upon closing Lightstone Value Plus REIT
      LLC,
      our advisor, will receive an acquisition fee equal to 2.75% of the acquisition
      price, or approximately $9.7 million at closing.





31




The
      closing of the acquisition of the Prime Interest is subject to customary closing
      conditions. The closing of the acquisition of the Prime Interest is scheduled
      for the earlier of December 15, 2008 or a maximum 30 days after the Operating
      Partnership obtains audited financial statements of Prime for the last three
      fiscal years (the “Financial Statements”), but in no event later than June 26,
      2009. If the Operating Partnership does not obtain the Financial Statements
      by
      June 26, 2009 and does not close the transaction, it would be required to pay
      liquidated damages in the amount of $6.08 million. However, AR Prime cannot
      specifically enforce the Contribution and Convenyance Agreement if the Operating
      Partnership does not obtain the Financial Statements. Subject to the fulfillment
      of the closing conditions, the Operating Partnership will issue to AR Prime
      (i)
      275,000 Common Units and 52,250 Preferred Units with an aggregate liquidation
      preference of $52,250,000 (this amount will be reduced by the amount of any
      distributions by Prime to AR Prime prior to closing) and (ii) Common Units
      with
      a value equal to 5% of the Adjustment Amount and additional Preferred Units
      with
      a liquidation preference equal to 95% of the Adjustment Amount. The “Adjustment
      Amount” is the amount of interest that would have accrued on a loan in the
      principal amount of $52,250,000, at an interest rate of 4.6316%, from June
      26,
      2008 until the closing.





In
      connection with the contribution of the Prime Interest, we made a loan to AR
      Prime in the principal amount of $49.5 million (the “Prime Loan”). The Prime
      Loan is payable semi-annually and accrues interest at an annual rate of 4%.
      The
      Prime Loan matures on June 26, 2016 and contains customary events of default
      and
      default remedies. The Prime Loan contains provisions requiring AR Prime to
      prepay the Prime Loan (i) in full upon the redemption by the Operating
      Partnership of the Preferred Units to be issued to AR Prime in connection with
      the closing of the acquisition of the Prime Interest and (ii) in part, with
      the
      proceeds of any distribution received by AR Prime from Prime prior to such
      closing. The Prime Loan is secured by AR Prime’s interest in the Prime Interest.
      Upon the closing, the Common Units and Preferred Units issued to AR Prime will
      replace the Prime Interest as the security for the Prime Loan. Also, upon the
      closing, the Company will make an additional loan to AR Prime, on the same
      terms
      and conditions as the Prime Loan, in the principal amount equal to 90% of the
      Adjustment Amount. Total accrued interest related to this loan totaled $0.5
      million at September 30, 2008, and is included in tenant and other
      receivables.





**2008
      Renovation and Expansion**





On
      October 2, 2007, we closed on the acquisition of an 8.5-acre parcel of
      undeveloped land for $2.75 million, for further development of the adjacent
      St.
      Augustine Outlet mall. Development rights to the land parcel were purchased
      at
      an additional cost of $1.3 million. We have started the construction of the
      expansion which will add approximately 90,000 square feet to the existing
      center. Upon completion of the expansion and renovation to the existing
      property, the center’s gross leaseable area will approximate 335,000 square
      feet. The cost for the renovation and expansion of the outlet mall is expected
      to approximate $35.2 million. Numerous established retail brands have executed
      lease agreements and will occupy the expanded and renovated outlet mall,
      including Saks 5 th Avenue,
      Ann Taylor, Juicy Couture, Kate Spade, Lucky Brand Jeans, Papaya Clothing and
      BCBG Max Azaria. These tenants will occupy approximately 53,000 square feet.
      Costs to date include the purchase of the land and the development rights total
      $5.5 million. We estimate the total remaining cash needs of the project to
      total
      $28.6 million. The Company plans to fund the renovation and expansion from
      offering proceeds.





The
      Company entered into a construction loan to fund the development of
      approximately 60,000 square feet of the power retail center at its Lake Jackson,
      Texas Location. 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.   The center opened in April 2008, and three
      tenants occupy 100% of the property’s rentable square footage. The tenants,
      Petsmart, Office Depot and Best Buy all have 10 year leases.




**Critical
      Accounting Policies**




There
      were no changes during the three months ended September 30, 2008 to our critical
      accounting policies as reported in our Annual Report on Form 10-K, for the
      year
      ended December 31, 2007.




**Inflation**




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





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




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




32




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. After the Company
      adopts SFAS 141R, all expense reimbursements will be expensed.




Lightstone
      SLP, LLC, an affiliate of our Sponsor, has and advises us that it intends to
      continue to purchase special general partner interests (“SLP Units”) in the
      Operating Partnership. These SLP Units, the purchase price of which will be
      repaid only after stockholders receive a stated preferred return and their
      net
      investment, will entitle Lightstone SLP, LLC to a portion of any regular
      distributions made by the Operating Partnership. Such distributions will always
      be subordinated until stockholders receive a stated preferred return. Lightstone
      SLP, LLC has received its proportional share of distributions to date;
      representing a 7% annualized return on the value of its SLP Units, through
      September 30, 2008.




Proceeds
      from the sale of the SLP Units will be used to fund organizational and offering
      costs incurred by the Company. As of September 30, 2008, offering costs were
      $29.0 million and were offset by $28.5 million of proceeds from the sale of
      SLP
      Units of which $3.2 million had yet been funded. The Advisor intends to offset
      this obligation with a portion of the $9.7 million acquisition fee to be paid
      to
      the Advisor upon the Company’s settlement of its acquisition of the 25%
      membership interest in Prime Outlets Acquisitions Company.





**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 carry forwards of $0.7 million 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* . FIN 48
      prescribes a comprehensive model for how a company should recognize, measure,
      present, and disclose in its financial statements uncertain tax positions that
      the company has taken or expects to take on a tax return. This Interpretation
      only allows a favorable tax position to be included in the calculation of tax
      liabilities and expenses if a company concludes that it is more likely than
      not
      that its adopted tax position will prevail if challenged by tax authorities.
      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 September 30, 2008, the
      Company had no material uncertain income tax positions. The tax years 2005
      through 2007 remain open to examination by the major taxing jurisdictions to
      which the Company is subject.





**Results
      of Operations**




We
      commenced operations on February 1, 2006 upon the release of our offering
      proceeds from escrow. Additionally, we acquired our first property, the Belz
      Outlets at St. Augustine, Florida, on March 31, 2006. 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.




33





**For
      the Three Months Ended September 30, 2008 vs. September 30,
      2007**





***Revenues***




Total
      revenues increased by approximately $4.2 million to approximately $10.3 million
      for the three months ended September 30, 2008 compared to $6.1 million for
      the
      comparable period last year. Base rents increased $4.1 million primarily due
      to
      our acquisition of a portfolio a land parcel in Lake Jackson, Texas, intended
      for immediate development as a power retail center, on June 29, 2007, which
      subsequently opened in April of 2008; two hotels in Houston, Texas on October
      17, 2007; and 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 remained consistent with the prior
      year.





***Total
      Property Expenses***




Total
      property expenses increased by $2.4 million, to approximately $4.7 million
      for
      the three months ended September 30, 2008, compared to approximately $2.3
      million for the comparable period last year. Increases in property operating
      expenses were primarily the result of the acquisition of new properties during
      the fourth quarter of 2007. During the third quarter 2008, Hurricane Gustav
      caused an estimated $0.3 million loss representing our insurance deductible.
      There was no hurricane damage during the same period in 2007.





***Real
      Estate Taxes***




Total
      real estate taxes increased by $0.4 million, to approximately $1.0 million
      for
      the three months ended September 30, 2008, compared to approximately $0.6
      million for the comparable period last year. Increases in real estate taxes
      were
      primarily the result of the acquisition of new properties in February of 2007,
      and during the fourth quarter of 2007.





***General
      and administrative expenses***




General
      and administrative costs increased by approximately $0.9 million to
      approximately $1.3 million, primarily as a result of an increase in asset
      management fees $0.4 million and an increase in the bad debt reserve of $0.6
      million.




***Depreciation
      and Amortization***




Depreciation
      and amortization expense increased by approximately $0.6 million for the three
      months ended September 30, 2008 to $2.1 million, as compared to $1.5 million
      at
      June 30, 2007 primarily due to the acquisition and financing of new properties
      in February of 2007, and during the fourth quarter of 2007.




***Other
      Income***




Other
      income increased by approximately $0.4 million due principally to slight
      increase related to vending and other ancillary revenue sources at our
      properties.




***Interest
      Income***




Interest
      income increased by approximately $0.4 million, due primarily to the increase
      in
      interest and dividend income recorded on the short-term investments and
      marketable securities. The average balance of cash and marketable securities
      was
      $54.6 million and $49.9 million at September 30, 2008 and September 30 2007,
      respectively.





***Interest
      expense***




Interest
      expense increased approximately $1.2 million to approximately $3.4 million
      for
      the three months ended September 30, 2008, primarily as a result of the
      acquisition and financing of new properties in February of 2007, and during
      the
      fourth quarter of 2007.





***Loss
      from Investments in Unconsolidated Affiliated Real Estate
      Entities***




A
      $0.7
      million loss from investment in unconsolidated real estate entities for the
      three months ended September 30, 2008, compared to $1.7 million loss in the
      same
      period last year relates to our investment in the sub lease interest to a ground
      lease of a Manhattan office building on January 4, 2007 and our investment
      in
      Mill Run Properties (Orlando Outlet & Design Center) on June 26, 2008. The
      improvement resulted primarily from increased revenues of approximately $0.2
      at
      1407 Broadway, as a result of increases in rents per square foot for new and
      renewal leases, a decrease in depreciation and amortization of $0.7 million
      at
      1407 Broadway as a result of tenant roll over, a $0.3 million decline in
      interest expense at 1407 Broadway, due to the decline in the LIBOR rate, and
      a
      $0.1 million share of net income at Mill Run.





34




***Impairment
      charge***




The
      Company’s securities and the overall REIT market experienced significant
      declines in the third quarter of 2008, which increased the duration and
      magnitude of the Company’s unrealized losses. The overall challenges in the
      economic environment, including near term prospects for certain of the Company’s
      securities makes a recovery period difficult to project. Although the Company
      has the ability to hold these securities until potential recovery, the Company
      believes certain of the losses for these securities are other than temporary.
       As of September 30, 2008, we booked an impairment of $9.7 million related
      to the write down of securities. During the three months ended September 30,
      2007, we did not recognize an impairment charge.





**For
      the Nine Months Ended September 30, 2008 vs. September 30,
      2007**





***Revenues***




Total
      revenues increased by approximately $12.8 million to approximately $30.0 million
      for the nine months ended September 30, 2008 compared to $17.2 million for
      the
      comparable period last year. Base rents increased $12.3 million primarily due
      to
      our acquisition of a portfolio of 12 industrial and 2 office buildings in
      Louisiana and Texas, on February 1, 2007; and a land parcel in Lake Jackson,
      Texas, on June 29, 2007, which subsequently opened in April of 2008; two hotels
      in Houston, Texas on October 17, 2007; and 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
      approximately $0.4 million primarily as a result of our acquisition of a
      portfolio of 12 industrial and 2 office buildings in Louisiana and Texas,
      on February 1, 2007.





***Total
      Property Expenses***




Total
      property expenses increased by $6.8 million, to approximately $13.0 million
      for
      the nine months ended September 30, 2008, compared to approximately $6.2 million
      for the comparable period last year. Increases in property operating expenses
      were primarily the result of the acquisition of new properties in February
      of
      2007, and during the fourth quarter of 2007. During the nine months ended
      September 30, 2008, Hurricane Gustav caused an estimated $0.3 million loss
      representing our insurance deductible. There was no hurricane damage during
      the
      same period in 2007.





***Real
      Estate Taxes***




Total
      real estate taxes increased by $1.3 million, to approximately $3.1 million
      for
      the nine months ended September 30, 2008, compared to approximately $1.8 million
      for the comparable period last year. Increases in real estate taxes were
      primarily the result of the acquisition of new properties in February of 2007,
      and during the fourth quarter of 2007.





***General
      and administrative expenses***




General
      and administrative costs increased by approximately $5.4 million to
      approximately $8.3 million, primarily as a result of the payment of acquisition
      fees $2.8 million, asset management fees increased $1.0 million due to the
      increase in the Lightstone REIT’s assets, and bad debt expense increased $0.8
      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 approximately $2.0 million for the nine
      months ended September 30, 2008 to $6.5 million, as compared to $4.5 million
      at
      September 30, 2007 primarily due to the acquisition and financing of new
      properties during the fourth quarter of 2007.




***Other
      Income***




Other
      income decreased by approximately $0.2 million due principally to slight
      decrease related to vending and other ancillary revenue sources at our
      properties.




***Interest
      Income***




Interest
      income increased by approximately $2.4 million, due primarily to the increase
      in
      interest and dividend income recorded on the short-term investments and
      marketable securities. The average balance of cash and marketable securities
      was
      $60.4 million and $30.5 million at September 30, 2008 and September 30 2007,
      respectively.





35




***Interest
      expense***




Interest
      expense increased approximately $4.1 million to approximately $10.0 million
      for
      the nine months ended September 30, 2008, primarily as a result of the
      acquisition and financing of new properties during the fourth quarter of
      2007.





***Loss
      from Investments in Unconsolidated Affiliated Real Estate
      Entities***




A
      $2.2
      million loss from investment in unconsolidated real estate entities for the
      nine
      months ended September 30, 2008, compared to $5.9 million loss in the same
      period last year relates to our investment in the sub lease interest to a ground
      lease of a Manhattan office building on January 4, 2007 and our investment
      in
      Mill Run Properties (Orlando Outlet & Design Center) on June 26, 2008. The
      improvement resulted primarily from increased revenues of approximately $0.9
      at
      1407 Broadway, as a result of increases in rents per square foot for new and
      renewal leases, a decrease in depreciation and amortization of $1.9 million
      at
      1407 Broadway as a result of tenant roll over, a $0.5 million decline in
      interest expense at 1407 Broadway, due to the decline in the LIBOR rate, a
      $0.4
      million increase in other income at 1407 Broadway, due primarily to a lease
      termination fee, a $0.2 million increase in property expenses at 1407 Broadway,
      primarily due to an increase in utility costs, and a$0.1 million share of net
      income at Mill Run.





***Impairment
      charge***




The
      Company’s securities and the overall REIT market experienced significant
      declines in the third quarter of 2008, which increased the duration and
      magnitude of the Company’s unrealized losses. The overall challenges in the
      economic environment, including near term prospects for certain of the Company’s
      securities makes a recovery period difficult to project. Although the Company
      has the ability to hold these securities until potential recovery, the Company
      believes certain of the losses for these securities are other than temporary.
       As of September 30, 2008, we booked an impairment of $9.7 million related
      to the write down of securities. During the nine months ended September 30,
      2007, we did not recognize an impairment charge.





**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 and debt offerings 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
      liquidity requirements. We expect to meet our financing requirements through
      funds generated from our public offering and long-term and short-term
      borrowings.




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




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




We
      currently have $239.0 million of outstanding mortgage debt, and $7.4 million
      in
      a note 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.




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 and the approval of our board of
      directors, and subsequent 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 September 30, 2008, our total borrowings
      represented 98% of net assets.




36




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,
      and
      construction loans will typically require a recourse guarantee. 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.




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




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





As
      of the
      nine months ended September 30, 2008 and 2007, the following table represents
      the fees paid to payments to our Advisor, our Dealer Manager, and our Property
      Manager.





**Nine Months Ended**
            
            **Nine Months Ended****September 30, 2008**
            
            **September 30, 2007**Acquisition
                fees
            
            $
            2,336,565
            
            $
            3,400,396Asset
                management fees
            
            
            1,582,009
            
            
            520,610Property
                management fees
            
            
            1,264,879
            
            
            721,031Acquisition
                expenses reimbursed to Advisor
            
            
            1,265,528
            
            
            -Development
                fees
            
            
            556,390
            
            
            -Leasing
                commissions
            
            
            485,405
            
            
            179,085Total
            
            **$**
            **7,490,776**
            
            **$**
            **4,821,122**





As
      of
      September 30, 2008 we had approximately $70.0 million of cash and cash
      equivalents on hand and $11.4 million of marketable securities. Our cash and
      cash equivalents on hand and marketable securities 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 (in
      thousands):




37





**Nine Months**
              **Ended September 30,**
              **2008**
            
            **Nine Months**
              **Ended September 30,**
              **2007**Cash flows provided by (used in) from
                operating activities
            
            $
            3,854,494
            
            $
            3,186,514Cash
                flows used in investing activities
            
            
            (91,920,965
            )
            
            (116,656,722
            )Cash
                flows provided by financing activities
            
            
            128,026,146
            
            
            122,019,616Net
                change in cash
            
            
            39,959,675
            
            
            8,549,408Cash,
                beginning of the period
            
            
            29,589,815
            
            
            19,280,710Cash,
                end of the period
            
            $
            69,549,490
            
            $
            27,830,118




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 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 portfolio of 12 industrial and 2 office buildings in
      Louisiana and Texas, on February 1, 2007; and five multifamily apartment
      communities, one in Tampa, Florida, two in Greensboro, North Carolina and two
      in
      Charlotte, North Carolina on November 16, 2007, offset by temporary declines
      in
      operations at the projects under expansion and renovation, which included a
      retail outlet shopping mall in St. Augustine, Florida, a power retail center
      in
      Texas which was acquired on June 29, 2007, and opened April 2008.





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.




Cash
      used
      in investing activities of $92 million resulted primarily from the $49.5 million
      note receivable issued in connection to the signing of a material agreement
      to
      enter into a contribution and conveyance agreement to acquire a 25% interest
      in
      Prime Outlets Acquisition Company, which owns 18 retail outlet malls and four
      development projects, $17.6 million related to a note receivable entered into
      in
      connection with our investment in two retail outlet malls in Orlando, Florida,
      a
      preferred equity contribution in the amount of $11 million into a real estate
      lending company, which is an affiliate of our sponsor, and $7.5 million on
      investments in real estate, primarily related to the renovation and expansion
      project ongoing at our St. Augustine retail outlet mall.




Cash
      provided by financing activities in the amount of $128.0 million resulted
      primarily from the proceeds from the issuance of common stock ($152.1 million),
      proceeds from issuance of special partnership interests ($12.3 million), initial
      loan draws of ($3.2 million), offset by notes receivable from stockholders
      ($17.6 million), the payment of offering costs ($15.9 million), and
      distributions of ($5.4 million).





At
      September 30, 2008, we had mortgage and note debt totaling approximately $246.4
      million as follows:





Property
            
            Loan Amount
            
            Interest Rate
            
            Maturity Date
            
            Amount Due at MaturitySt.
                Augustine
            
            $
            26,820,623
            
            
            6.09
            %
            
            April 2016
            
            $
            23,747,523Oakview
                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)
            
            
            11,626,780
            
            
            LIBOR
                + 1.75
            %
            
            April 2009
            
            
            11,626,780Camden
                Multi Family Properties - (Five Individual Loans)
            
            
            79,268,800
            
            
            5.44
            %
            
            December 2014
            
            
            74,955,771Southeastern
                Michigan Multi Family Properties
            
            
            40,725,000
            
            
            5.96
            %
            
            July 2016
            
            
            38,138,605Total
                of eleven outstanding mortgage loans at September 30, 2008
            
            $
            238,966,203
            
            
            
            
            
            
            
            $
            223,608,801Brazos
                Crossing
            
            
            7,416,941
            
            
            LIBOR
                + 1.50
            %
            
            December 2009
            
            
            8,200,000Total
                of one note payable at September 30, 2008
            
            $
            7,416,941
            
            
            
            
            
            
            
            $
            8,200,000Total
                mortgage and notes payable at September 30, 2008
            
            $
            246,383,144
            
            
            
            
            
            
            
            $
            231,808,801








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





**Remainder****of
                2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**
            
            **Thereafter**
            
            **Total**Mortgage
                & Note Payable
            
            $
            82,412
            
            $
            19,381,773
            
            $
            359,526
            
            $
            1,586,956
            
            $
            2,781,012
            
            $
            222,191,465
            
            $
            246,383,144




38




***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 adopted SFAS No. 159 as required effective January 1, 2008. The adoption
      of SFAS No. 159 did not have a material effect on the consolidated results
      of
      operations or financial position.




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 adopted SFAS No.
      157
      as required effective January 1, 2008. The adoption of SFAS No. 157 did not
      have
      a material effect on the consolidated results of operations or financial
      position.





In
      May
      2008, the FASB issued SFAS No. 162, *The
      Hierarchy of Generally Accepted Accounting Principles* (“SFAS
      162”). SFAS 162 identifies the sources of accounting principles and the
      framework for selecting the principles to be used in the preparation of
      financial statements of nongovernmental entities that are presented in
      conformity with generally accepted accounting principles in the United States.
      SFAS 162 is effective 60 days following the Securities and Exchange Commission’s
      (“SEC”) approval of the Public Company Accounting Oversight Board amendments to
      AU Section 411, The Meaning of Present Fairly in Conformity with Generally
      Accepted Accounting Principles. The Company is currently evaluating the
      potential impact, if any, of the adoption of SFAS 162 on its financial
      statements.





In
      December 2007, the FASB issued FASB No. 141(R) *,
      Business Combinations (Revised),* 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, *Noncontrolling
      Interests in Consolidated Financial Statements, 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.





39




**ITEM
      3. 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. The Company’s
      securities and the overall REIT market experienced significant declines in
      the
      third quarter of 2008, which increased the duration and magnitude of the
      Company’s unrealized losses. The overall challenges in the economic environment,
      including near term prospects for certain of the Company’s securities makes a
      recovery period difficult to project. Although the Company has the ability
      to
      hold these securities until potential recovery, the Company believes certain
      of
      the losses for these securities are other than temporary.  As of September
      30, 2008, we booked an impairment of $9.7 million related to the write down
      of
      securities.




At
      September 30, 2008, we had mortgage and note debt totaling approximately $246.4
      million as follows:





Property
            
            Loan Amount
            
            Interest Rate
            
            Maturity Date
            
            Amount Due at MaturitySt.
                Augustine
            
            $
            26,820,623
            
            
            6.09
            %
            
            April 2016
            
            $
            23,747,523Oakview
                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)
            
            
            11,626,780
            
            
            LIBOR
                + 1.75
            %
            
            April 2009
            
            
            11,626,780Camden
                Multi Family Properties - (Five Individual Loans)
            
            
            79,268,800
            
            
            5.44
            %
            
            December 2014
            
            
            74,955,771Southeastern
                Michigan Multi Family Properties
            
            
            40,725,000
            
            
            5.96
            %
            
            July 2016
            
            
            38,138,605Total
                of eleven outstanding mortgage loans at September 30, 2008
            
            $
            238,966,203
            
            
            
            
            
            
            
            $
            223,608,801Brazos
                Crossing
            
            
            7,416,941
            
            
            LIBOR
                + 1.50
            %
            
            December 2009
            
            
            8,200,000Total
                of one note payable at September 30, 2008
            
            $
            7,416,941
            
            
            
            
            
            
            
            $
            8,200,000Total
                mortgage and notes payable at September 30, 2008
            
            $
            246,383,144
            
            
            
            
            
            
            
            $
            231,808,801





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





**Remainder****of
                2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**
            
            **Thereafter**
            
            **Total**Mortgage
                & Note Payable
            
            $
            82,412
            
            $
            19,381,773
            
            $
            359,526
            
            $
            1,586,956
            
            $
            2,781,012
            
            $
            222,191,465
            
            $
            246,383,144




LIBOR
      at
      September 30, 2008 was 3.9263%. 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, at which time 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.





40




**ITEM
      4. CONTROLS AND PROCEDURES.**




As
      of the
      end of the period covered by this report, management, including our chief
      executive officer and interim chief financial officer, evaluated the
      effectiveness of the design and operation of our disclosure controls and
      procedures. Based upon, and as of the date of, the evaluation, our chief
      executive officer and chief financial officer concluded that the disclosure
      controls and procedures were effective to ensure that information required
      to be
      disclosed in the reports we file and submit under the Exchange Act is recorded,
      processed, summarized and reported as and when required.




There
      have been no changes in our internal control over financial reporting that
      occurred during our last fiscal quarter that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting. There were no significant deficiencies or material weaknesses
      identified in the evaluation, and therefore, no corrective actions were
      taken.





41





**PART
      II. OTHER INFORMATION:**


**ITEM
      1. 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 of 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.





42





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**




During
      the period covered by this Form 10-Q, 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.





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
      September 30, 2008, we had issued approximately 29.4 million shares for gross
      offering proceeds of approximately $290.3 million, which includes $5.6 million
      of proceeds from shares issued in distribution reinvestment program. From the
      effective date of our public offering through September 30, 2008, we have
      incurred the following expenses in connection with the issuance and distribution
      of the registered securities:





**Type
                of Expense Amount Estimated/Actual**Underwriting
                discounts and commissions
            
            $
            22,724,250
            ActualFinders’
                fees
            
            
            -Expenses
                paid to or for underwriters
            
            
            -Other
                expenses to affiliates
            
            
            -Other
                expenses paid to non-affiliates
            
            
            6,304,220**Total
                expenses**
            
            $
            29,028,470





The
      net
      offering proceeds to us, after deducting the total expenses paid as described
      above, and after accounting for $28.5 million in contributions by Lightstone
      SLP, LLC is approximately $290.3 million. The underwriting discounts and
      commissions were paid to our dealer manager, which reallowed all or a portion
      of
      the commissions to soliciting dealers.





With
      the
      net offering proceeds of $290.3 million, and new mortgage debt in the amount
      of
      $239.0 million, and a note payable of $7.4 million we acquired approximately
      $331.3 million in real
      estate investments (including $8.0 million in acquisition fees) and related
      assets. In addition we invested $13.5 million in a joint venture, and paid
      an
      acquisition fee of $1.6 million, to acquire a sub-leasehold interest in a ground
      lease to an office building located at 1407 Broadway, New York, New York. On
      June 26, 2008, we entered into a contribution and conveyance agreement to
      acquire the interest in two retail outlet malls in Orlando, Florida, and
      executed a loan in connection with that acquisition in the amount of $17.6
      million. Cumulatively, we have used the net offering proceeds as follows:





**September 30, 2008**Construction
                of plant, building and facilities
            
            $
            32,737,028Purchase
                of real estate interests
            
            
            117,836,215Acquisition
                of other businesses
            
            
            -Repayment
                of indebtedness
            
            
            -Purchase
                and installation of machinery and equipment
            
            
            -Working
                capital (as of September 30, 2008)
            
            
            69,549,491Temporary
                investments (as of September 30, 2008)
            
            
            20,662,414Other
                uses
            
            
            49,500,000**Total
                uses**
            
            $
            290,285,148




As
      of
      October 15, 2008, we have sold 30.8 million shares (inclusive of 0.8
      million shares pursuant to the Company’s dividend reinvestment program) at an
      aggregate offering price of $307 million.





43





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




None.





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




None.





**ITEM
      5. OTHER INFORMATION.**




None.





**PART
      II. OTHER INFORMATION, CONTINUED:**




**ITEM
      6. EXHIBITS**





**Exhibit**
              **Number**
            
            **Description**31.1*
            
            Certification
                Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of
                the
                Sarbanes-Oxley Act of 2002.31.2*
            
            Certification
                Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of
                the
                Sarbanes-Oxley Act of 2002.32.1*
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551
                this
                Exhibit is furnished to the SEC and shall not be deemed to be
                “filed.”32.2*
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551
                this
                Exhibit is furnished to the SEC and shall not be deemed to be
                “filed.”




*Filed
      herewith





44




**SIGNATURES**




Pursuant
      to the requirements 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: November
                14, 2008
            By:
            /s/ David
                LichtensteinDavid
                LichtensteinChairman,
                President and Chief Executive Officer
              (Principal
                Executive Officer)




Date:
                November 14, 2008
            By:
            /s/ Donna
                BrandinDonna
                BrandinChief
                Financial Officer and Treasurer
              (Duly
                Authorized Officer and Principal Financial and Accounting
                Officer)




45