**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, 2007





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.)**





**326
                Third Street****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
      filer þ




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
      November 8, 2007, there were 12,443,274 outstanding shares of common stock
      of
      Lightstone Value Plus Real Estate Investment Trust, Inc.




1




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





**INDEX**




**PART I**
            
            **FINANCIAL
                INFORMATION**
            
            **Page**Item 1.
            
            Financial
                StatementsConsolidated
                Balance Sheets as of September 30, 2007 (unaudited) and December
                31,
                2006
            
            3Consolidated
                Statements of Operations (unaudited) for the Nine and Three Months
                Ended
                September 30, 2007 and 2006
            
            4Consolidated
                Statement of Stockholders’ Equity and Comprehensive Income (Loss)
                (unaudited) for the Nine Months Ended September 30, 2007
            
            5Consolidated
                Statements of Cash Flows (unaudited) for the Nine Months Ended September
                30, 2007 and 2006
            
            6Notes
                to Consolidated Financial Statements
            
            7Item 2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            32Item 3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            46Item 4.
            
            Controls
                and Procedures
            
            47**PART II**
            
            **OTHER
                INFORMATION**Item
                1.
            
            Legal
                Proceedings
            
            47Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            48Item
                3.
            
            Defaults
                Upon Senior Securities
            
            49Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            49Item
                5.
            
            Other
                Information
            
            49Item
                6.
            
            Exhibits
            
            50




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,
                  2007**
              
              **December****31, 2006*****Assets***
              
              (unaudited)
              
              (audited)Investment
                  property:Land
              
              $
              35,312,554
              
              $
              20,141,357Building
              
              
              134,240,651
              
              
              82,217,115Construction
                  in Progress
              
              
              1,886,708
              
              
              -171,439,913
              
              
              102,358,472Less
                  accumulated depreciation
              
              
              (4,162,517
              )
              
              (1,184,590
              )Net
                  investment property
              
              
              167,277,396
              
              
              101,173,882Investment
                  in unconsolidated real estate joint venture
              
              
              7,565,245
              
              
              -Cash
              
              
              27,830,118
              
              
              19,280,710Marketable
                  Securities
              
              
              26,393,500
              
              
              -Restricted
                  escrows
              
              
              9,339,246
              
              
              6,912,578Deposits
                  for purchase of real estate
              
              
              13,203,195
              
              
              8,435,000Due
                  from escrow agent
              
              
              -
              
              
              163,949Tenant
                  and other accounts receivable
              
              
              1,072,984
              
              
              316,232Acquired
                  in-place lease intangibles (net of accumulated amortization of
                  $2,413,737
                  and $1,365,512, respectively)
              
              
              2,235,422
              
              
              1,801,678Acquired
                  above market lease intangibles (net of accumulated amortization
                  of
                  $284,821 and $75,258, respectively)
              
              
              793,439
              
              
              601,987Deferred
                  intangible leasing costs (net of accumulated amortization of $491,483
                  and
                  $161,636, respectively)
              
              
              1,274,681
              
              
              735,079Deferred
                  leasing costs (net of accumulated amortization of $33,614 and $8,696,
                  respectively)
              
              
              179,177
              
              
              23,359Deferred
                  financing costs (net of accumulated amortization of $103,688 and
                  $26,813,
                  respectively)
              
              
              963,068
              
              
              691,777Prepaid
                  expenses and other assets
              
              
              1,154,337
              
              
              571,986**Total
                  Assets**
              
              $
              259,281,808
              
              $
              140,708,217***Liabilities
                  and Stockholders' Equity***Mortgage
                  payable
              
              $
              148,379,210
              
              $
              95,475,000Accounts
                  payable and accrued expenses
              
              
              4,327,153
              
              
              1,980,052Tenant
                  allowances and deposits payable
              
              
              663,190
              
              
              301,970Distributions
                  payable
              
              
              1,924,318
              
              
              601,286Prepaid
                  rental revenues
              
              
              602,081
              
              
              81,020Acquired
                  below market lease intangibles (net of accumulated amortization
                  of
                  $1,613,410 and $953,435, respectively)
              
              
              2,304,730
              
              
              2,011,063Due
                  to affiliate
              
              
              -
              
              
              -158,200,682
              
              
              100,450,391Minority
                  interest in partnership
              
              
              11,428,083
              
              
              4,282,122Commitments
                  and contingenciesStockholders'
                  equity:Preferred
                  shares, 10,000,000 shares authorized, none outstanding
              
              
              -
              
              
              -Common
                  stock, $.01 par value; 60,000,000 shares authorized, 11,776,766
                  and
                  4,316,989 shares issued and outstanding, respectively
              
              
              117,768
              
              
              43,170Additional
                  paid-in-capital
              
              
              104,104,816
              
              
              38,686,993Accumulated
                  other comprehensive income
              
              
              1,545,670
              
              
              -Accumulated
                  distributions in addition to net loss
              
              
              (16,115,211
              )
              
              (2,754,459
              )Total
                  stockholder’s equity
              
              
              89,653,043
              
              
              35,975,704**Total
                  Liabilities and Stockholders' Equity**
              
              $
              259,281,808
              
              $
              140,708,217




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, 2007**
              
              **Three
                  Months ended September 30, 2006**
              
              **Nine
                  Months ended September 30, 2007**
              
              **Nine
                  Months ended September 30, 2006**Revenues:Rental
                  income
              
              $
              5,086,124
              
              $
              2,830,537
              
              $
              14,560,096
              
              $
              3,819,234Tenant
                  recovery income
              
              
              965,838
              
              
              241,234
              
              
              2,713,944
              
              
              744,6576,051,962
              
              
              3,071,771
              
              
              17,274,040
              
              
              4,563,891Expenses:Property
                  operating expenses
              
              
              2,330,393
              
              
              1,444,232
              
              
              6,237,907
              
              
              1,939,753Real
                  estate taxes
              
              
              656,626
              
              
              341,211
              
              
              1,863,946
              
              
              502,350General
                  and administrative costs
              
              
              399,977
              
              
              322,374
              
              
              2,865,059
              
              
              578,062Depreciation
                  and amortization
              
              
              1,466,833
              
              
              1,030,337
              
              
              4,461,532
              
              
              1,216,3414,853,829
              
              
              3,138,154
              
              
              15,428,444
              
              
              4,236,506Operating
                  (loss) income
              
              
              1,198,133
              
              
              (66,383
              )
              
              1,845,596
              
              
              327,385Other
                  income
              
              
              880,040
              
              
              303,502
              
              
              1,762,617
              
              
              371,532Interest
                  expense
              
              
              (2,240,420
              )
              
              (1,059,802
              )
              
              (6,396,234
              )
              
              (1,495,697
              )Loss
                  from investment in unconsolidated Joint Venture
              
              
              (1,721,940
              )
              
              -
              
              
              (5,910,940
              )
              
              -Minority
                  interest
              
              
              (24
              )
              
              77
              
              
              168
              
              
              73Net
                  loss applicable to common shares
              
              $
              (1,884,211
              )
              $
              (822,606
              )
              $
              (8,698,793
              )
              $
              (796,707
              )Net
                  loss per common share, basic and diluted
              
              $
              (0.17
              )
              $
              (0.46
              )
              $
              (1.09
              )
              $
              (0.82
              )Weighted
                  average number of common shares outstanding, basic and
                  diluted
              
              
              10,942,668
              
              
              1,772,331
              
              
              7,954,063
              
              
              975,986




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 COMPREHENSIVE INCOME
      (LOSS)**


**(UNAUDITED)**




**Preferred
                  Shares**
              
              
              **Common
                  Shares****Preferred
                  Shares**
              
              
              **Amount**
              
              
              **Common
                  Shares**
              
              
              **Amount**
              
              
              **Additional
                  Paid-In Capital**
              
              
              **Accumulated
                  Other Comprehensive Income**
              
              
              **Accumulated
                  Distributions in Excess of Net Income**
              
              
              **Total
                  Stockholders' Equity****BALANCE,
                  December 31, 2006**
              
              
              -
              
              $
              -
              
              
              4,316,989
              
              $
              43,170
              
              $
              38,686,993
              
              $
              -
              
              $
              (2,754,459
              )
              $
              35,975,704**Comprehensive
                  Income: (Loss)**Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (8,698,793
              )
              
              (8,698,793
              )Unrealized
                  gain on available for sale securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,545,670
              
              
              -
              
              
              1,545,670Total
                  comprehensive income (loss)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (7,153,123
              )Distributions
                  declared
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              (4,661,959
              )
              
              (4,661,959
              )Proceeds
                  from offering
              
              
              -
              
              
              -
              
              
              7,331,306
              
              
              73,313
              
              
              71,168,925
              
              
              -
              
              
              -
              
              
              71,242,238Selling
                  commissions and dealer manager fees
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,769,099
              )
              
              -
              
              
              -
              
              
              (4,769,099
              )Other
                  offering costs
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,201,187
              )
              
              -
              
              
              -
              
              
              (2,201,187
              )Proceeds
                  from distribution reinvestment program
              
              
              
              
              
              
              
              
              128,471
              
              
              1,285
              
              
              1,219,184
              
              
              -
              
              
              -
              
              
              1,220,469**BALANCE,
                  September 30, 2007**
              
              
              -
              
              $
              -
              
              
              11,776,766
              
              $
              117,768
              
              $
              104,104,816
              
              $
              1,545,670
              
              $
              (16,115,211
              )
              $
              89,653,043




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, 2007**
              
              **Nine
                  months ended September 30, 2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (8,698,793
              )
              $
              (796,707
              )Loss
                  allocated to minority interests
              
              
              (168
              )
              
              (73
              )Adjustments
                  to reconcile net loss to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              4,059,848
              
              
              510,587Amortization
                  of deferred financing costs
              
              
              76,876
              
              
              15,425Amortization
                  of deferred leasing costs
              
              
              401,684
              
              
              -Amortization
                  of above and below-market lease intangibles
              
              
              (450,412
              )
              
              475,365Net
                  equity in loss from investment in unconsolidated joint
                  venture
              
              
              5,910,940
              
              
              -Changes
                  in assets and liabilities:Increase
                  in prepaid expenses and other assets
              
              
              (586,091
              )
              
              (715,830
              )Increase
                  in tenant and other accounts receivable
              
              
              (756,752
              )
              
              (198,225
              )Increase
                  in tenant allowance and security deposits payable
              
              
              361,220
              
              
              319,856Increase
                  in accounts payable and accrued expenses
              
              
              2,347,101
              
              
              1,331,084Increase
                  in prepaid rents
              
              
              521,061
              
              
              161,270Net
                  cash provided by operating activities
              
              
              3,186,515
              
              
              1,102,752**CASH
                  FLOWS USED IN INVESTING ACTIVITIES:**Purchase
                  of investment property, net
              
              
              (62,702,844
              )
              
              (70,516,814
              )Purchase
                  of marketable securities
              
              
              (24,847,830
              )
              
              -Investment
                  in unconsolidated joint venture
              
              
              (13,476,185
              )
              
              -Funding
                  of restricted escrows
              
              
              (2,426,668
              )
              
              (7,092,867
              )Refundable
                  deposit for investment in real estate
              
              
              (13,203,195
              )
              
              -Net
                  cash used in investing activities
              
              
              (116,656,722
              )
              
              (77,609,681
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from mortgage financing
              
              
              53,025,000
              
              
              67,975,000Mortgage
                  payments
              
              
              (120,790
              )
              
              -Payment
                  of loan fees and expenses
              
              
              (348,167
              )
              
              (425,302
              )Proceeds
                  from issuance of common stock
              
              
              71,242,238
              
              
              24,334,879Proceeds
                  from issuance of special general partnership units
              
              
              7,146,129
              
              
              2,453,487Payment
                  of offering costs
              
              
              (6,970,286
              )
              
              (2,227,521
              )Decrease
                  in amounts due from escrow agent
              
              
              -
              
              
              (1,051,202
              )Decrease
                  in amounts due to affiliates, net
              
              
              -
              
              
              (40,687
              )Due
                  from escrow agent
              
              
              163,949
              
              
              -Distributions
                  paid
              
              
              (2,118,457
              )
              
              (113,478
              )Net
                  cash provided by financing activities
              
              
              122,019,616
              
              
              90,905,176**Net
                  change in cash**
              
              
              8,549,408
              
              
              14,398,247**Cash,
                  beginning of period**
              
              
              19,280,710
              
              
              205,030**Cash,
                  end of period**
              
              $
              27,830,118
              
              $
              14,603,277**Supplemental
                  disclosure of cash flow information:**Cash
                  paid for interest
              
              $
              6,139,799
              
              $
              1,254,025Dividends
                  declared
              
              $
              4,661,959
              
              $
              -Unrealized
                  gain on available for sale securities
              
              $
              1,545,670
              
              $
              -




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 Consolidated Financial Statements**


**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, 2007, cumulative gross offering proceeds of approximately $114.4
      million have been released to the Lightstone REIT and used for the purchase
      of a
      99.99% general partnership interest in the Operating Partnership. The Company
      expects that its ownership percentage in the Operating Partnership will remain
      significant as it plans to continue to invest all net proceeds from the Offering
      in the Operating Partnership.




Lightstone
      SLP, LLC, an affiliate of the Advisor, intends to periodically purchase special
      general partner interests (“SLP Units”) in the Operating Partnership at a cost
      of $100,000 per unit for each $1.0 million in offering subscriptions. Proceeds
      from the sale of the SLP Units will be used to fund organizational and offering
      costs incurred by the Company. As of September 30, 2007, offering costs of
      $11.6
      million have been substantially offset by $11.4 million of proceeds from the
      sale of SLP Units. Lightstone SLP, LLC has purchased an additional $0.2
      million of SLP Units subsequent to September 30, 2007.




7




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


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, 2007, the Advisor has not allocated any
      organizational costs to the Company. Advances for offering costs in excess
      of
      the 10% threshold (approximately $0 at September 30, 2007) will only be
      reimbursed to the Advisor as additional offering proceeds are received by the
      Company.





Through
      its Operating Partnership, the Company will seek to acquire and operate
      commercial, residential, and hospitality properties, principally in the
      United States. Primarily all such properties may be acquired and operated by
      the
      Company alone or jointly with another party. Since inception, the Company has
      completed the acquisition of the Belz Factory Outlet World in St. Augustine,
      Florida, four multi-family communities in Southeast Michigan, a retail power
      center and raw land in Omaha, Nebraska and a portfolio of industrial and office
      properties located in New Orleans, LA (5 industrial and 2
      office properties), Baton Rouge, LA (3 industrial properties) and San
      Antonio, TX (4 industrial properties). In addition, the Company has made an
      investment in a sub-leasehold interest in a ground lease to an office building
      located at 1407 Broadway in New York, NY and has purchased a land parcel in
      Lake
      Jackson, TX on which it has begun the development of a retail power center.
      All
      of the acquired properties and development activities are managed by affiliates
      of Lightstone Value Plus REIT Management LLC (the “Property
      Manager”).




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




**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, 2007, the Company had
      a
      99.99% general partnership interest in the Operating Partnership. All
      inter-company balances and transactions have been eliminated in consolidation.




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




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




Cash
      and Cash Equivalents




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




8




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


Marketable
      Securities





Our
      marketable securities consist of equity securities that are designated as
      available-for-sale and are recorded at fair value. Unrealized holding gains
      or
      losses are reported as a component of accumulated other comprehensive income
      (loss). Realized gains or losses resulting from the sale of these securities
      are
      determined based on the specific identification of the securities sold.
      Marketable securities with original maturities greater than three months and
      less than one year are classified as short-term; otherwise they are classified
      as long-term. An impairment charge is recognized when the decline in the fair
      value of a security below the amortized cost basis is determined to be
      other-than-temporary. We consider various factors in determining whether to
      recognize an impairment charge, including the duration and severity of any
      decline in fair value below our amortized cost basis, any adverse changes in
      the
      financial condition of the issuers’ and our intent and ability to hold the
      investment for a period of time sufficient to allow for any anticipated recovery
      in market value. The
      Board
      has authorized the Company to from time to time to invest the Company’s
      available cash in marketable securities of real estate related companies. The
      Board has approved investments up to 30% of the Company’s total assets to be
      made at the Company’s discretion, subject to compliance with any REIT or other
      restrictions.





Revenue
      Recognition




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




Accounts
      Receivable




The
      Company makes estimates of the uncollectability of its accounts receivable
      related to base rents, expense reimbursements and other revenues. The Company
      analyzes accounts receivable and historical bad debt levels, customer credit
      worthiness and current economic trends when evaluating the adequacy of the
      allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed
      and estimates are made in connection with the expected recovery of pre-petition
      and post-petition claims. The Company’s reported net income is directly affected
      by management’s estimate of the collectability of accounts receivable. The total
      allowance for doubtful accounts was $69,728 and $3,047 at September 30, 2007
      and
      December 31, 2006, respectively.




Investment
      in Real Estate




*Accounting
      for Acquisitions*




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




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




9




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


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




The
      aggregate value of in-place leases is determined by evaluating various factors,
      including an estimate of carrying costs during the expected lease-up periods,
      current market conditions and similar leases. In estimating carrying costs,
      management includes real estate taxes, insurance and other operating expenses,
      and estimates of lost rental revenue during the expected lease-up periods based
      on current market demand. Management also estimates costs to execute similar
      leases including leasing commissions, legal and other related costs. The value
      assigned to this intangible asset is amortized over the remaining lease terms
      ranging from one month to approximately 11 years. Optional renewal periods
      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, 2007. The estimated cash flows
      used for the impairment analysis and the determination of estimated fair value
      are based on the Company’s plans for the respective assets and the Company’s
      views of market and economic conditions. The estimates consider matters such
      as
      current and historical rental rates, occupancies for the respective Properties
      and comparable properties, and recent sales data for comparable properties.
      Changes in estimated future cash flows due to changes in the Company’s plans or
      views of market and economic conditions could result in recognition of
      impairment losses, which, under the applicable accounting guidance, could be
      substantial.




10




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


Depreciation
      and Amortization




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




Deferred
      Costs




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





Income
      Taxes





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, 2007, the Company has complied with the requirements for maintaining its
      REIT status.




Effective
        January 1, 2007, the Company adopted FIN No. 48, *Accounting
        for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
        109* .
        The
        adoption of FIN 48 did not have a material impact on the Company’s financial
        position, results of operation, or cash flows. As of September 30, 2007,
        the
        Company had no material uncertain income tax positions. The tax years 2004
        through 2006 remain open to examination by the major taxing jurisdictions
        to
        which the Company is subject.


Organization
      and Offering Costs




The
      Company estimates offering costs of approximately $300,000 if the minimum
      offering of 200,000 shares is sold, and approximately $30,000,000 if the maximum
      offering of 30,000,000 shares is sold. Subject to limitations in terms of the
      maximum percentage of costs to offering proceeds that may be incurred by the
      Company, third-party offering expenses such as registration fees, due diligence
      fees, marketing costs, and professional fees, along with selling commissions
      and
      dealer manager fees paid to the Dealer Manager, are accounted for as a reduction
      against additional paid-in capital (“APIC”) as offering proceeds are released to
      the Company.




11




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


Through
      September 30, 2007, the Advisor has advanced approximately $11.4 million to
      the
      Company for offering costs, including commission and dealer manager fees, and
      the Company has directly funded an additional $0.2 million of offering costs
      pending further advances from the Advisor which has been subsequently repaid.
      Based on gross proceeds of approximately $114.4 million from its public
      offering as of September 30, 2007, the Company’s responsibility for the
      reimbursement of advances for commissions and dealer manager fees was limited
      to
      approximately $9.2 million (or 8% of the gross offering proceeds), and its
      obligation for advances for organization and third-party offering costs was
      limited to approximately $2.2 million (or 2% of the gross offering
      proceeds).





Financial
      Instruments




The
      carrying amounts of cash and cash equivalents, accounts receivable and accounts
      payable approximate their fair values because of the short maturity of these
      instruments. The fair value of the fixed-rate mortgage debt and unsecured notes
      as of September 30, 2007 approximated the book value of approximately $148.4
      million. The fair value of the mortgage debt was determined by discounting
      the
      future contractual interest and principal payments by a market
      rate.




Use
      of
      Estimates




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





Net
      Loss per Share




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




New
      Accounting Pronouncements




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




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




12




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


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





Reclassifications




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





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




*St
      Augustine Retail Outlet Mall*




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




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





In-place
      rents, net of rent concessions, and occupancy for the property for permanent
      tenants at September 30, 2007 was as follows:




In
                place rents, net annualized
            
            $
            2.7
                millionOccupancy
                percentage
            
            
            62.15
            %





The
      Company has also temporarily leased 34% of the property. The Company plans
      to
      begin the redevelopment and expansion of this center after the acquisition
      of
      the adjacent land is completed. The Company is in the process of finalizing
      its
      development plan and has incurred approximately $0.1 million in pre development
      costs to date, which are included in construction in progress as of September
      30, 2007.





*Southeastern
      Michigan Multi-Family Properties*




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




13




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


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





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





In-place
      rents, net of rent concessions, and average occupancy for the four properties
      at
      September 30, 2007 was as follows:





In
                place rents, net annualized
            
            $
            8.6
                millionOccupancy
                percentage
            
            
            94.3
            %




*Oakview
      Plaza*




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




The
      property was purchased subject to a commitment to acquire a 2.1 acre parcel
      of
      land (the “Option Land”) located immediately adjacent to the property. The
      unimproved Option Land was subsequently acquired in July of 2007 by a subsidiary
      of the Operating Partnership from Oakview for a fixed contract price of
      $650,000. The acquisition price for the property, exclusive of the Option Land,
      was $33.5 million, including an acquisition fee paid to the Advisor of $0.9
      million and $47,000 in other acquisition-related transaction costs.
      Approximately $6.0 million of the acquisition cost was funded with offering
      proceeds from the sale of our common stock and the remainder was funded with
      a
      $27.5 million fixed rate loan from Wachovia secured by the property. Offering
      proceeds were also used to fund financing related costs ($.2 million) and
      insurance and tax reserves ($.2 million), as well as the acquisition of the
      Option Land. The Property was independently appraised at $38.0 million.





In-place
      rents, net of rent concessions, and occupancy for the property at September
      30,
      2007 was as follows:





In
                place rents, net
            
            $
            2.4
                millionOccupancy
                percentage
            
            
            97.10
            %




*Manhattan
      Office Building*




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




14


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


The
      acquisition price for the Sublease Interest was $122 million, exclusive of
      acquisition-related costs incurred by the Joint Venture ($3.5 million), pro
      rated operating expenses paid at closing ($4.1 million), financing-related
      costs
      ($1.9 million) and construction, insurance and tax reserves ($1.0 million).
      The
      acquisition was funded through a combination of $26.5 million of capital and
      a
      $106.0 million advance on a $127.3 million variable rate mortgage loan funded
      by
      Lehman Brothers Holding, Inc. As an inducement to Lender to make the loan,
      Owner
      has agreed to provide Lender with a 35% net profit interest in the project.
        In addition, the Company paid $1.6 million to the Advisor as an
      acquisition fee and legal fees to its attorney of approximately $0.1
      million. The acquisition and legal fees were charged to expense by the
      Company during the first quarter of 2007, and are included in general and
      administrative expenses for the nine months ended September 30,
      2007.





The
      Company accounted for the investment in this unconsolidated joint venture under
      the equity method of accounting as the Company exercises significant influence,
      but does not control these entities. Equity from our co-venturer totaled $13.5
      million (representing a 51% ownership interest). Our capital investment, funded
      with proceeds from our common stock offering, was $13.0 million (representing
      a
      49% ownership interest). 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. 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, 2007, the Company’s results included a
      $5.9 million loss from investment in this unconsolidated joint venture,
      resulting in a net investment balance of approximately $7.6 million as of
      September 30, 2007. The Joint Venture plans to continue an ongoing
      renovation project at the property that consists of lobby, elevator and window
      redevelopment projects. Additional loan proceeds of up to $21.3 million are
      available to fund these improvements.





In-place
      rents, net of rent concessions, and average occupancy for the property at
      September 30, 2007 was as follows:





In
                place rents, net
            
            $
            36.2
                millionOccupancy
                percentage
            
            
            89.9
            %




15


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


The
      following table represents the condensed income statement for the unconsolidated
      joint venture for the period from January 4, 2007 through September 30,
      2007:





**Three
                  months ended September 30, 2007**
              
              **Nine
                  months ended September 30, 2007**(unaudited)
              
              (unaudited)Total
                  revenue
              
              $
              9,719,506
              
              $
              27,665,542Total
                  property expenses
              
              
              6,944,157
              
              
              20,064,841Depreciation
                  and amortization
              
              
              3,978,760
              
              
              12,950,254Interest
                  expense
              
              
              2,310,755
              
              
              6,713,591Net
                  operating loss
              
              $
              (3,514,166
              )
              $
              (12,063,144
              )Company's share
                  of net operating loss (49%)
              
              $
              (1,721,940
              )
              $
              (5,910,940
              )


The
      following table represents the condensed balance sheet for the unconsolidated
      joint venture as of September 30, 2007:




**As
                  of September 30, 2007**(unaudited)Real
                  estate, at cost (net):
              
              $
              111,005,943Intangible
                  assets
              
              
              13,502,429Cash
                  and restricted cash
              
              
              13,088,435Other
                  assets
              
              
              5,027,762Total
                  assets
              
              $
              142,234,910Mortgage
                  note payable
              
              $
              108,364,535Other
                  liabilities
              
              
              18,439,664Members'
                  capital
              
              
              15,430,711Total
                  liabilities and members' capital
              
              $
              142,234,910




*Gulf
      Coast Industrial Portfolio*




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




16




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


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





In-place
      rents, net of rent concessions, and occupancy for the properties at September
      30, 2007 were as follows:





In
                place rents, net
            
            $
            6.3
                millionOccupancy
                percentage
            
            
            92.9
            %




*Brazos
      Crossing Mall*





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





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





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





An
      application for up to $8.2 million of construction to permanent financing is
      underway. The interest rate on the loan is expected to be Libor plus 150 basis
      points. 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.




17




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


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





**Name
                  of Tenant**
              
              **BusinessType**
              
              **Square
                  Feet Leased**
              
              **Percentage
                  of Leasable Space**
              
              **Annual
                  Rent Payments**
              
              **Lease
                  Term from Commencement**
              
              **Party
                  with Renewal Rights**Best
                  Buy
              
              
              Electronics
                  Retailer
              
              
              20,200
              
              
              32.9%
              
              
              $260,000
              
              
              10
                  years
              
              
              TenantOffice
                  Depot
              
              
              Office
                  Supplies Retailer
              
              
              21,000
              
              
              34.3%
              
              
              $277,200
              
              
              10
                  years
              
              
              TenantPetsmart
              
              
              Pet
                  Supply Retailer
              
              
              20,087
              
              
              32.8%
              
              
              $231,001
              
              
              10
                  years
              
              
              Tenant




As
      of
      September 30, 2007, the approximate fixed future minimum rentals from the
      Company’s commercial real estate properties, excluding Brazos Crossing which is
      not yet opened, are as follows:





Balance
                  of 2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              Thereafter
              
              TotalMinimum
                  Rents
              
              $
              2,753,872
              
              $
              10,136,827
              
              $
              7,939,085
              
              $
              4,753,383
              
              $
              3,095,920
              
              $
              1,978,572
              
              $
              30,657,659




The
      following unaudited pro forma combined condensed statements of operations set
      forth the consolidated results of operations for the nine months ended September
      30, 2007 and September 30, 2006, respectively, as if the above described
      acquisitions and equity investments had occurred at January 1, 2006. The
      unaudited pro forma information does not purport to be indicative of the results
      that actually would have occurred if the acquisitions had been in effect for
      the
      nine months ended September 30, 2007 and September 30, 2006, respectively,
      or
      for any future period.




Nine
                  Months EndedSeptember
                  30,2007
              
              2006(unaudited)
              
              (unaudited)Real
                  estate revenues
              
              $
              17,983,937
              
              $
              18,220,318Equity
                  in loss from investment in unconsolidated joint venture
              
              
              (5,910,940
              )
              
              (7,366,964
              )Net
                  loss
              
              
              (8,687,359
              )
              
              (9,713,570
              )Basic
                  and diluted loss per share
              
              $
              (1.09
              )
              $
              (1.86
              )




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




Mortgages
      payable, totaling approximately $148.4 million at September 30, 2007, consists
      of four secured loans, two of which mature in 2016, and two of which mature
      in
      2017. The loans bear interest at a fixed annual rate of 6.09%, 5.96%, 5.49%
      and
      5.83%, respectively. Monthly installments of interest only are required through
      the first 12, 60, 60 and 60 months, respectively, and monthly installments
      of
      principal and interest are required throughout the remainder of their stated
      terms. At their maturity, approximately $23.4 million, $37.9 million, $22.6
      million and $49.3 million, respectively, will be due, assuming no prior
      principal prepayment. Each of the loans is secured by acquired real estate
      and
      is non-recourse to the Company.




18




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


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




Balance
                of 2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              Thereafter
              
              TotalFixed
                  rate mortgages
              
              $
              124,114
              
              $
              344,388
              
              $
              365,957
              
              $
              388,876
              
              $
              661,414
              
              $
              146,494,461
              
              $
              148,379,210


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




Pursuant
      to the Company’s loan agreements, escrows in the amount of $9.3 million were
      held in restricted escrow accounts at September 30, 2007. These escrows will
      be
      released in accordance with the loan agreements as payments of real estate
      taxes, insurance and capital improvement transactions, as required. Our mortgage
      debt also contains clauses providing for prepayment penalties.





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




At
      September 30, 2007, the Company had intangible assets relating to above-market
      leases from property acquisitions, intangible assets related to leases in place
      at the time of acquisition, intangible assets related to leasing costs, and
      intangible liabilities relating to below-market leases from property
      acquisitions.




The
      following table sets forth the Company’s unaudited intangible assets as of
      September 30, 2007 and December 31, 2006:




At
                    September 30, 2007
                
                At
                    December 31, 2006Cost
                
                Accumulated
                    Amortization
                
                Net
                
                Cost
                
                Accumulated
                    Amortization
                
                NetAcquired
                    in-place lease intangibles
                
                **$**
                4,649,159
                
                **$**
                (2,413,737
                )
                **$**
                2,235,422
                
                $
                3,167,190
                
                $
                (1,365,512
                )
                $
                1,801,678Acquired
                    above market lease intangibles
                
                
                1,078,260
                
                
                (284,821
                )
                
                793,439
                
                
                677,245
                
                
                (75,258
                )
                
                601,987Acquired
                    leasing costs
                
                
                1,766,164
                
                
                (491,483
                )
                
                1,274,681
                
                
                896,715
                
                
                (161,636
                )
                
                735,079Acquired
                    below market lease intangibles
                
                
                3,918,140
                
                
                (1,613,410
                )
                
                2,304,730
                
                
                2,964,498
                
                
                (953,435
                )
                
                2,011,063




19




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


The
      following table presents the unaudited 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, 2007:


Amortization
                    of:
                
                
                Balance
                    of 2007
                
                
                2008
                
                
                2009
                
                
                2010
                
                
                2011
                
                
                Thereafter
                
                
                TotalAcquired
                    above market lease value
                
                $
                78,789
                
                $
                270,682
                
                $
                206,755
                
                $
                97,974
                
                $
                53,943
                
                $
                85,297
                
                $
                793,439Acquired
                    below market lease value
                
                
                (237,227
                )
                
                (792,375
                )
                
                (578,214
                )
                
                (282,515
                )
                
                (137,611
                )
                
                (276,788
                )
                
                (2,304,730
                )Projected
                    future net rental income decrease
                
                $
                (158,438
                )
                $
                (521,693
                )
                $
                (371,459
                )
                $
                (184,541
                )
                $
                (83,668
                )
                $
                (191,491
                )
                $
                (1,511,290
                )Acquired
                    in-place lease intangibles
                
                $
                253,129
                
                $
                812,091
                
                $
                520,941
                
                $
                228,538
                
                $
                113,896
                
                $
                306,827
                
                $
                2,235,422


Amortization
      expense related to in place leases was $0.3 million and $0.7 million for the
      three months ended September 30, 2007 and 2006, respectively. Amortization
      expense related to in place leases was $1.0 million and $0.7 million for the
      nine months ended September 30, 2007 and 2006, respectively. Amortization
      expense related to leasing costs was $15,162 and $1,080 for the three months
      ended September 30, 2007 and 2006, respectively. Amortization expense related
      to
      leasing costs was $30,191 and $1,080 for the nine months ended September 30,
      2007 and 2006, respectively. Amortization expense related to above and below
      market leases was $0.2 million and $0.1 million for the three months ended
      September 30, 2007 and 2006, respectively. Amortization expense related to
      above
      and below market leases was $0.5 million and $0.2 million for the nine months
      ended September 30, 2007 and 2006, respectively. Amortization related to above
      and below market leases is included in rental revenues for all periods
      presented.





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




On
      August
      9, 2007, the Company declared a dividend for the three-month period ending
      September 30, 2007. 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, 2007 dividend was paid in full in October 2007 using a combination
      of cash ($1.2 million) and 78,116 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, which totaled ($0.7 million).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.





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




At
      September 30, 2007, the Company recorded $13.2 million as a refundable deposit
      for real estate purchases, of which $12.4 million related to an option agreement
      to enter into a joint venture to purchase an industrial building in Sarasota,
      FL., $0.3 million related to the purchase of the additional parcel of land
      adjacent to our St. Augustine property in October 2007 (See Note 11), and $0.5
      million related to the purchase of two hotel properties in Texas in October
      2007
      (see Note 11). At December 31, 2006, the Company recorded $8.4 million as a
      refundable deposit for two real estate transactions that subsequently closed
      in
      the first quarter. Deposits for real estate will be returned to the Company
      upon
      the conclusion of its due diligence where such properties are deemed infeasible
      for acquisition.




20




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


***8.
      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, 2007 and December 31, 2006, the Lightstone REIT had no
      outstanding preferred shares.




***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.




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 11.8 million and 4.3 million shares of common stock outstanding
      as
      of September 30, 2007 and December 31, 2006, respectively.




***Dividends***





The
      Board of Directors of the Lightstone REIT declared a dividend for each quarter
      in 2006 and for the quarters ended March 31, 2007, June 30, 2007 and September
      30, 2007. The dividends have been calculated based on stockholders of record
      each day during this three-month period at a rate of $0.0019178 per day, which,
      if paid each day for a 365-day period, would equal a 7.0% annualized rate based
      on a share price of $10.00. The
      September 30, 2007 dividend was paid in full in October 2007 using a combination
      of cash ($1.2 million) and 78,116 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, which totaled ($0.7 million).On
      September 24, 2007, the Company declared a dividend for the three-month period
      ending December 31, 2007. The dividend will be 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.




21




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


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




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





22
 
  **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (continued)**
 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%.
  23
  **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (continued)**
 **Fees**
                  
                  **Amount**Property
                      Management -*Residential/Retail*
                  
                  Lightstone
                      REIT may pay the Property Manager a separate fee for the one-time
                      initial
                      rent-up or leasing-up of newly constructed properties in an
                      amount not to
                      exceed the fee customarily charged in arm’s length transactions by others
                      rendering similar services in the same geographic area for
                      similar
                      properties as determined by a survey of brokers and agents
                      in such
                      area.Property
                      Management -*Office/Industrial*
                  
                  The
                      Property Manager will be paid monthly property management and
                      leasing fees
                      of up to 4.5% of gross revenues from office and industrial
                      properties. In
                      addition, the Lightstone REIT may pay the Property Manager
                      a separate fee
                      for the one-time initial rent-up or leasing-up of newly constructed
                      properties in an amount not to exceed the fee customarily charged
                      in arm’s
                      length transactions by others rendering similar services in
                      the same
                      geographic area for similar properties as determined by a survey
                      of
                      brokers and agents in such area.Asset
                      Management Fee
                  
                  The
                      Advisor or its affiliates will be paid an asset management
                      fee of 0.55% of
                      the Lightstone REIT’s average invested assets, as defined, payable
                      quarterly in an amount equal to 0.1375 of 1% of average invested
                      assets as
                      of the last day of the immediately preceeding
                      quarter.
 **Fees**
                  
                  **Amount**Reimbursement
                      of
                  
                  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.Other
                      Expenses
                  
                  The
                      Advisor or its affiliates will be reimbursed for expenses that
                      may include
                      costs of goods and services, administrative services and non-supervisory
                      services performed directly for the Lightstone REIT by independent
                      parties.


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. A distribution of $0.2 million were declared and
      paid
      during the three months ended September 30, 2007. Such distributions, paid
      current at a 7% annualized rate of return to Lightstone SLP, LLC through
      September 30, 2007, totaled $0.5 million, and will always be subordinated
      until stockholders receive a stated preferred return, as described
      below:




24


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


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


**Liquidating
                    Stage**
                  **Distributions**
                
                **Amount
                      of Distribution**7%
                      Stockholder Return Threshold
                
                Once
                      stockholders have received liquidation distributions, and a
                      cumulative
                      non-compounded 7% return per year on their initial net investment,
                      Lightstone SLP, LLC will receive available distributions until
                      it has
                      received an amount equal to its initial purchase price of the
                      special
                      general partner interests plus a cumulative non-compounded
                      return of 7%
                      per year.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.
  25




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


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




Total
      asset management and acquisition fees of $3.9 million and approximately $2.0
      million were paid to the Advisor for the three months ended September 30, 2007
      and 2006, respectively. Total
      asset management and acquisition fees of $11.1 million and $2.8 million were
      paid to the Advisor for the nine months ended September 30, 2007 and 2006. As
      of
      September 30, 2007, $0.3 was due to our Property Manager, an affiliate of our
      Advisor, for the reimbursement of property level operating expenses; $0.2
      million was due to the Advisor for asset management fees.




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





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




The
      Company currently operates in five business segments as of September 30, 2007:
      (i) retail real estate, (ii) residential real estate, (iii) industrial real
      estate (iv) office real estate and (v) hospitality. The Company’s advisor and
      its affiliates provide leasing, property and facilities management, acquisition,
      development, construction and tenant-related services for its portfolio. The
      Company’s revenues for the nine months ended September 30, 2007 and 2006 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, 2007 and September 30, 2006.
      The
      accounting policies of the segments are the same as those described in Note
      2:
      Significant Accounting Policies, excluding depreciation and
      amortization.




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




26


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


Selected
      results of operations for the three and nine months ended September 30, 2007
      and
      2006, respectively and selected asset information as of September 30, 2007
      and
      2006 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
              
              
              41,538
              
              
              207,609
              
              
              2,253
              
              
              -
              
              
              -
              
              
              628,640
              
              
              880,040Interest
                  expense
              
              
              (815,807
              )
              
              (626,004
              )
              
              (798,609
              )
              
              -
              
              
              -
              
              
              -
              
              
              (2,240,420
              )Loss
                  in Unconsolidated joint ventures
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,721,940
              )
              
              -
              
              
              (1,721,940
              )Minority
                  interest
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (24
              )
              
              (24
              )Net
                  income(loss) applicable to common shares
              
              $
              (199,251
              )
              $
              76,219
              
              $
              (340,747
              )
              $
              -
              
              $
              (1,721,940
              )
              $
              301,508
              
              $
              (1,884,211
              )
  **Retail**
              
              **Multi
                  Family**
              
              **Industrial**
              
              **Hospitality**
              
              **Office**
              
              **Corporate**
              
              **Three
                  Months Ended September 30, 2006**Revenues:Rental
                  income
              
              $
              868,958
              
              $
              1,961,579
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              2,830,537Tenant
                  recovery income
              
              
              242,734
              
              
              (1,500
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              241,2341,111,692
              
              
              1,960,079
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,071,771Expenses:Property
                  operating expenses
              
              
              574,325
              
              
              869,907
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,444,232Real
                  estate taxes
              
              
              155,952
              
              
              185,259
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              341,211Depreciation
                  and amortization
              
              
              154,413
              
              
              875,924
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,030,337General
                  and adminsitrative costs
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              322,374
              
              
              322,374Operating
                  expenses
              
              
              884,690
              
              
              1,931,090
              
              
              -
              
              
              -
              
              
              -
              
              
              322,374
              
              
              3,138,154Net
                  property operations
              
              
              227,002
              
              
              28,989
              
              
              -
              
              
              -
              
              
              -
              
              
              (322,374
              )
              
              (66,383
              )Other
                  income
              
              
              92,914
              
              
              110,496
              
              
              -
              
              
              -
              
              
              -
              
              
              100,092
              
              
              303,502Interest
                  expense
              
              
              (433,825
              )
              
              (625,977
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,059,802
              )Minority
                  interest
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              77
              
              
              77Net
                  income(loss) applicable to common shares
              
              $
              (113,909
              )
              $
              (486,492
              )
              $
              -
              
              $
              -
              
              $
              -
              
              $
              (222,205
              )
              $
              (822,606
              )
  27
  **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (continued)**
 **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
              
              
              63,058
              
              
              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
              
              
              690,195
              
              
              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
              
              
              1,684,057
              
              
              908,821
              
              
              1,868,653
              
              
              -
              
              
              -
              
              
              -
              
              
              4,461,532Operating
                  expenses
              
              
              4,308,107
              
              
              4,694,836
              
              
              3,735,613
              
              
              -
              
              
              1,643,950
              
              
              1,045,937
              
              
              15,428,444Net
                  property operations
              
              
              1,626,134
              
              
              1,226,413
              
              
              1,682,938
              
              
              -
              
              
              (1,643,950
              )
              
              (1,045,937
              )
              
              1,845,596Other
                  income
              
              
              89,496
              
              
              597,475
              
              
              13,337
              
              
              -
              
              
              -
              
              
              1,062,310
              
              
              1,762,617Interest
                  expense
              
              
              (2,436,527
              )
              
              (1,857,787
              )
              
              (2,101,920
              )
              
              -
              
              
              -
              
              
              -
              
              
              (6,396,234
              )Loss
                  in Unconsolidated joint ventures
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              (5,910,940
              )
              
              
              
              
              (5,910,940
              )Minority
                  interest
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              168
              
              
              168Net
                  income applicable to common shares
              
              $
              (720,898
              )
              $
              (33,900
              )
              $
              (405,645
              )
              $
              -
              
              $
              (7,554,890
              )
              $
              16,541
              
              $
              (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
              
              
              -
              
              
              -
              
              
              -
              
              
              9,339,246Investment
                  in unconsolidated joint venture
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7,565,245
              
              
              -
              
              
              7,565,245Deposit
                  for real estate purchase
              
              
              275,000
              
              
              -
              
              
              12,428,195
              
              
              500,000
              
              
              -
              
              
              -
              
              
              13,203,195Tenant
                  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
              
              $
              259,281,808
  28
  **LIGHTSTONE
          VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (continued)**
 **Retail**
                
                **Multi
                    Family**
                
                **Industrial**
                
                **Hospitality**
                
                **Office**
                
                **Corporate**
                
                **Nine
                    Months Ended September 30, 2006**Revenues:Rental
                    income
                
                $
                1,815,518
                
                $
                2,003,716
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                3,819,234Tenant
                    recovery income
                
                
                744,657
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                744,6572,560,175
                
                
                2,003,716
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                4,563,891Expenses:Property
                    operating expenses
                
                
                1,062,359
                
                
                877,394
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,939,753Real
                    estate taxes
                
                
                313,399
                
                
                188,951
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                502,350Depreciation
                    and amortization
                
                
                318,925
                
                
                897,416
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,216,341General
                    and adminsitrative costs
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                578,062
                
                
                578,062Operating
                    expenses
                
                
                1,694,683
                
                
                1,963,761
                
                
                -
                
                
                -
                
                
                -
                
                
                578,062
                
                
                4,236,506Net
                    property operations
                
                
                865,492
                
                
                39,955
                
                
                -
                
                
                -
                
                
                -
                
                
                (578,062
                )
                
                327,385Other
                    income
                
                
                92,915
                
                
                110,496
                
                
                -
                
                
                -
                
                
                -
                
                
                168,121
                
                
                371,532Interest
                    expense
                
                
                (856,236
                )
                
                (639,461
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,495,697
                )Minority
                    interest
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                73
                
                
                73Net
                    income applicable to common shares
                
                $
                102,171
                
                $
                (489,010
                )
                $
                -
                
                $
                -
                
                $
                -
                
                $
                (409,868
                )
                $
                (796,707
                )**Balance
                    sheet financial data:**Real
                    estate assets, net
                
                $
                27,002,132
                
                $
                42,154,182
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                69,156,314Restricted
                    escrows
                
                
                5,261,449
                
                
                1,331,418
                
                
                -
                
                
                -
                
                
                -
                
                
                500,000
                
                
                7,092,867Tenant
                    and other accounts receivable
                
                
                158,182
                
                
                40,043
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                198,225Acquired
                    in-place lease intangibles, net
                
                
                190,281
                
                
                544,263
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                734,544Deferred
                    financing costs, net
                
                
                186,895
                
                
                222,982
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                409,877Other
                    assets
                
                
                96,954
                
                
                571,742
                
                
                -
                
                
                -
                
                
                -
                
                
                46,636
                
                
                715,333Non-segmented
                    assets
                
                
                -
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                15,654,479
                
                
                15,654,479Total
                    Assets
                
                $
                32,895,893
                
                $
                44,864,630
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                16,201,115
                
                $
                93,961,639




**11** . ***Subsequent
      Events***





***St.
      Augustine - Land Acquisition***





On
      October 2, 2007, the Company closed on the acquisition of an 8.5-acre parcel
      of
      undeveloped land for $2.75 million, which is intended to be used for further
      development of the adjacent Belz Outlet mall, owned by the Registrant.
      Development rights to the land parcel are to be purchased at an additional
      cost
      of $1.3 million. The Company currently expects to complete the planned
      renovation and expansion of the center, of approximately 65,000 square feet,
      during the second quarter of 2009. The cost for the renovation and expansion
      of
      the outlet mall is expected to approximate $28 million. Numerous established
      retail brands have expressed interest in establishing a presence in the expanded
      and renovated outlet mall.





***Camden
      Apartment Communities***





On
      October 15, 2007, the Company, as general partner of our operating partnership,
      entered into an Improved Commercial Property Earnest Money Contract with Camden
      Operating, L.P., a Delaware Limited Partnership (the “Earnest Money Contract”)
      for the acquisition of five apartment communities (the “Camden Properties”)
      located in Tampa, FL (one property), Charlotte, North Carolina (two properties)
      and Greensboro, North Carolina (two properties) for a purchase price of $97.35
      million exclusive of transaction costs and financing fees (the “Camden
      Transaction”).





Pursuant
      to the Earnest Money Contract, we made an initial earnest money deposit of
      $2.0
      million, to be held in escrow pending a successful closing of the Camden
      Transaction. The escrow amount shall be applied to the purchase price due and
      payable at such closing. The Camden Properties, built between 1980 and 1987,
      are
      comprised of 1,576 apartment units, in the aggregate, contain a total of
      1,124,249 net rentable square feet, and were approximately 94% occupied as
      of
      October 12, 2007.





Although
      the Company believes that the acquisition of the Camden Properties is probable
      and expects to acquire the Camden Properties on November 16, 2007, provided
      that
      the Company has completed our due diligence review of the properties to our
      satisfaction. There can be no assurances that this acquisition will be
      consummated.




29




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


***Houston
      Extended Stay Hotels***





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





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





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





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





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





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





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





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




30




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


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





31




**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
      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.





32




**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”), 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, 2007, Lightstone REIT has completed six acquisitions as of
      September 30, 2007: the Belz Factory Outlet World, a retail outlet shopping
      mall
      in St. Augustine, Florida, on March 31, 2006; four multi-family communities
      in
      Southeast Michigan on June 29, 2006; the Oakview Plaza, a retail shopping mall
      located in Omaha, Nebraska, on December 21, 2006; a 49% equity interest in
      a
      joint venture, formed to purchase a sub-leasehold interest in a ground
      lease to an office building in New York, NY, on January 4, 2007; a
      portfolio of 12 industrial and 2 office buildings in Louisiana and Texas,
      on February 1, 2007; and a land parcel in Lake Jackson, TX, intended for
      immediate development as a power retail center, on June 29, 2007.




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




We
      may
      finance our property acquisitions through a variety of means, including but
      not
      limited to individual non-recourse mortgages and through the exchange of an
      interest in the property for limited partnership units of the Operating
      Partnership. At December 31, 2006, we qualified as a REIT and have elected
      to be
      taxed as a REIT for the taxable year ending December 31, 2006. We plan to own
      substantially all of our assets and conduct our operations through the Operating
      Partnership.




33




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, 2007, cumulative gross
      offering proceeds of approximately $114.4 **** million
      have been released to the Lightstone REIT and used for the purchase of a 99.99%
      general partnership interest in the Operating Partnership. The Company expects
      that its ownership percentage in the Operating Partnership will remain
      significant as it plans to continue to invest all net proceeds from the Offering
      in the Operating Partnership.





Lightstone
      SLP, LLC, an affiliate of the Advisor, intends to periodically purchase special
      general partner interests (“SLP Units”) in the Operating Partnership at a cost
      of $100,000 per unit for each $1.0 million in offering subscriptions. Proceeds
      from the sale of the SLP Units will be used to fund organizational and offering
      costs incurred by the Company. As of September 30, 2007, offering costs of
      $11.6
      million have been substantially offset by $11.4 million of proceeds from the
      sale of SLP Units. Lightstone SLP, LLC has purchased an additional $0.2 million
      of SLP Units subsequent to September 30, 2007.




We
      are
      not aware of any material trends or uncertainties, favorable or unfavorable,
      other than national economic conditions affecting real estate generally, that
      may be reasonably anticipated to have a material impact on either capital
      resources or the revenues or income to be derived from the acquisition and
      operation of real estate and real estate related investments, other than those
      referred to in this Form 10-Q.




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 September 30, 2007, the Company has complied with the
      requirements for maintaining its REIT status.




**2007
      Acquisitions**




34




***Acquisition
      of Equity Investment in a Joint Venture***




On
      January 4, 2007, the Lightstone REIT, through LVP 1407 Broadway LLC, a wholly
      owned subsidiary of the Operating Partnership, entered into a joint venture
      with
      an affiliate of the Sponsor (the “Joint Venture”). On the same date, an
      indirect, wholly owned subsidiary of the Joint Venture acquired a sub-leasehold
      interest in a ground lease to an office building located at 1407 Broadway,
      New
      York, New York (the “Sublease Interest”). The seller of the Sublease Interest,
      Gettinger Associates, L.P., is not an affiliate of the Lightstone REIT or its
      subsidiaries. Equity from our co-venturer totaled $13.5 million (representing
      a
      51% ownership interest). Our capital investment, funded with proceeds from
      our
      common stock offering, was $13.0 million (representing a 49% ownership
      interest). The property, a 42 story office building built in 1952, fronts on
      Broadway, 7th Avenue and 39th Street in midtown Manhattan. The property has
      approximately 915,000 leasable square feet, and as of the acquisition date,
      was
      87.6% occupied (approximately 300 tenants) and leased by tenants primarily
      engaged in the female apparel business. The ground lease, dated as of January
      14, 1954, provides for multiple renewal rights, with the last renewal period
      expiring on December 31, 2048. The Sublease Interest runs concurrently with
      the
      ground lease.





The
      acquisition price for the Sublease Interest was $122 million, exclusive of
      acquisition-related costs incurred by the Joint Venture ($3.5 million), pro
      rated operating expenses paid at closing ($4.1 million), financing-related
      costs
      ($1.9 million) and construction, insurance and tax reserves ($1.0 million).
      Incremental acquisition costs of approximately $1.7 million, representing an
      acquisition fee to the Advisor and legal fees for our counsel, were paid outside
      of the closing and included in the Lightstone REIT’s general and administrative
      expenses during the first quarter ended March 31, 2007.




The
      acquisition was funded through a combination of $26.5 million of capital and
      a
      $106.0 million advance on a $127.3 million variable rate mortgage loan funded
      by
      Lehman Brothers Holding, Inc. As an inducement to Lender to make the loan,
      Owner
      has agreed to provide Lender with a 35% net profit interest in the project.
      The
      loan is secured by the Sublease Interest. We plan to continue an ongoing
      renovation project at the property that consists of lobby, elevator and window
      redevelopment projects. Additional loan proceeds of up to $21.3 million are
      available to fund these improvements.




35




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. This $13.0 million initial investment
      was
      recorded at cost and will be subsequently adjusted for cash contributions and
      distributions and the Company’s share of earnings and losses. 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, 2007, the Company’s
      results included a $5.9 million loss from investment in this unconsolidated
      joint venture.




The
      following table represents the unaudited condensed income statement for the
      unconsolidated joint venture for the period from January 4, 2007 through
      September 30, 2007:




**Three
                  months ended September 30, 2007**
              
              **Nine
                  months ended September 30, 2007**Total
                  revenue
              
              $
              9,719,506
              
              $
              27,665,542Total
                  property expenses
              
              
              6,944,157
              
              
              20,064,841Depreciation
                  and amortization
              
              
              3,978,760
              
              
              12,950,254Interest
                  expense
              
              
              2,310,755
              
              
              6,713,591Net
                  operating loss
              
              $
              (3,514,166
              )
              $
              (12,063,144
              )Company's share
                  of net operating loss (49%)
              
              $
              (1,721,940
              )
              $
              (5,910,940
              )


The
      following table represents the unaudited condensed balance sheet for the
      unconsolidated joint venture as of September 30, 2007:




**As
                  of September 30, 2007**Real
                  estate, at cost (net):
              
              $
              111,005,943Intangible
                  assets
              
              
              13,112,770Cash
                  and restricted cash
              
              
              13,088,435Other
                  assets
              
              
              5,027,762Total
                  assets
              
              $
              142,234,910Mortgage
                  note payable
              
              
              108,364,535Other
                  liabilities
              
              
              18,439,664Members'
                  capital
              
              
              15,430,711Total
                  liabilities and members' capital
              
              $
              142,234,910




36




***Acquisition
      of Industrial and Office Portfolio***




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




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




***Acquisition
      of Land Parcel***





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





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





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





An
      application for up to $8.2 million of construction to permanent financing is
      underway. The interest rate on the loan is expected to be Libor plus 150 bps.
      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, will be
      required to approve any leverage exceptions as required by the REIT’s Articles
      of Incorporation.





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




37




**Name
                  of Tenant**
              
              **BusinessType**
              
              **Square
                  Feet Leased**
              
              **Percentage
                  of Leasable Space**
              
              **Annual
                  Rent Payments**
              
              **Lease
                  Term from Commencement**
              
              **Party
                  with Renewal Rights**Best
                  Buy
              
              Electronics
                  Retailer
              
              20,200
              
              32.9%
              
              $
                  260,000
              
              10
                  years
              
              TenantOffice
                  Depot
              
              Office
                  Supplies Retailer
              
              21,000
              
              34.3%
              
              $
                  277,200
              
              10
                  years
              
              TenantPetsmart
              
              Pet
                  Supply Retailer
              
              20,087
              
              32.8%
              
              $
                  231,001
              
              10
                  years
              
              Tenant


***St.
      Augustine - Land Acquisition***





On
      October 2, 2007, the Company closed on the acquisition of an 8.5-acre parcel
      of
      undeveloped land for $2.75 million, which is intended to be used for further
      development of the adjacent Belz Outlet mall, owned by the Registrant.
      Development rights to the land parcel are to be purchased at an additional
      cost
      of $1.3 million. The Company currently expects to complete the planned
      renovation and expansion of the center, of approximately 65,000 square feet,
      during the second quarter of 2009. The cost for the renovation and expansion
      of
      the outlet mall is expected to approximate $28 million. Numerous established
      retail brands have expressed interest in establishing a presence in the expanded
      and renovated outlet mall.





***Houston
      Extended Stay Hotels***





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





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





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





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





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





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





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




38




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





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





**Critical
      Accounting Policies**




There
      were no changes during the nine months ended September 30, 2007 to our
      critical accounting policies as reported in our Annual Report on Form 10-K,
      for
      the year ended December 31, 2006.




**Inflation**




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





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




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


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




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




Expense
      reimbursements made to both our Advisor and Property Manager will be expensed
      or
      capitalized to the basis of acquired assets, as appropriate.




Lightstone
      SLP, LLC, an affiliate of our Sponsor, has and 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, 2007.




39




Proceeds
      from the sale of the SLP Units are used to fund organizational and offering
      costs incurred by the Lightstone REIT. As of September 30, 2007, offering costs
      of $11.6 million have been substantially offset by $11.4 million of proceeds
      from the sale of SLP Units. Lightstone SLP, LLC has purchased an additional
      $0.2
      million of SLP Units subsequent to September 30, 2007.




**Income
      Taxes**




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




As
      such,
      no provision for federal income taxes has been included in the Lightstone REIT
      consolidated financial statements as of September 30, 2007 and December 31,
      2006. As a REIT, we still may be subject to certain state, local and foreign
      taxes on our income and property and to federal income and excise taxes on
      our
      undistributed taxable income.







**Results
      of Operations**




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.





**For
      the Three Months Ended September 30, 2007 vs September 30,
      2006**





***Revenues***




Total
      revenues increased by approximately $3.0 million to approximately $6.1 million
      for the three months ended September 30, 2007 compared to $3.1
      million **** for the
      same period last year. Base rents increased by approximately $2.3 million
      primarily as a result of our acquisition of the Oakview Plaza in Omaha, Nebraska
      on December 21, 2006 and the gulf coast industrial portfolio on February 1,
      2007. Tenant reimbursements increased by approximately $0.8 million, to
      approximately $1.0 million for the three months ended September 30, 2007, as
      compared to $0.2 million for the same period in the prior year. The increase
      was
      a result of our acquiring the Belz Outlets at St. Augustine, Florida on March
      31, 2006, the Oakview Plaza in Omaha, Nebraska on December 21, 2006 and the
      Gulf
      Coast industrial portfolio on February 1, 2007.





***Total
      Property Expenses***




Total
      expenses increased by $0.9 million, to approximately $2.3 million for the three
      months ended September 30, 2007, compared to approximately $1.5 million for
      the
      same period last year. Increases in property operating expenses were primarily
      the result of the acquisition of new properties on December 21, 2006 and
      February 1, 2007, respectively.




40




***Real
      Estate Taxes***




Total
      real estate taxes increased by $0.4 million, to approximately $0.7 million
      for
      the three months ended September 30, 2007, compared to approximately $0.3
      million for the same period last year. Increases in real estate taxes were
      primarily the result of the acquisition of new properties on December 21, 2006
      and February 1, 2007, respectively.





***General
      and administrative expenses***




General
      and administrative costs increased by approximately $0.1 million to
      approximately $0.4 **** million,
      primarily as a result of asset management fees in the amount of $0.2 million
      paid to the Advisor related to the Lightstone REIT’s assets at September 30,
      2007.  General and administrative expenses for the three months ended
      September 30, 2006 totaled $0.3 million, and included approximately $0.1 million
      of asset management fees recorded under our asset management agreement with
      the
      Advisor. 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 $0.5 million for the three
      months ended September 30, 2007 to $1.5 million, as compared to $1.0 million
      at
      September 30, 2006 primarily due to the acquisition and financing of new
      properties on December 21, 2006 and February 1, 2007, respectively.




***Other
      Income***




Other
      income increased by approximately $0.6 million due principally to $0.5 million
      of interest income on the short-term investment of Cumulative Offering proceeds
      during the three-month period ended September 30, 2007, as well as approximately
      $0.1 million related to vending and other ancillary revenue sources at our
      properties.




***Interest
      expense***




Interest
      expense increased approximately $1.2 million to approximately $2.2 million
      for
      the three months ended September 30, 2007, primarily as a result of the
      acquisition and financing of new properties on December 21, 2006 and February
      1,
      2007, respectively.





***Equity
      in loss from investment in unconsolidated joint
      venture***




A
      $1.7
      million loss from investment in unconsolidated joint venture for the three
      months ended September 30, 2007 relates to our investment in the sub lease
      interest to a ground lease of a Manhattan office building on January 4, 2007.
      There were no investments in unconsolidated joint ventures at September 30,
      2006.




***Minority
      interest***




The
      (loss) gain allocated to minority interests, representing approximately $(24)
      and $77 for the three months ended September 30, 2007 and 2006, respectively,
      relates to the interests in the Operating Partnership held by our
      Sponsor.





**For
      the Nine Months Ended September 30, 2007 vs September 30,
      2006**





***Revenues***




Total
      revenues increased by approximately $12.7 million to approximately $17.3 million
      for the nine months ended September 30, 2007 compared to $4.6 million **** for the
      same period last year. Base rents increased by approximately $10.7 million
      primarily as a result of our acquisition of the Belz Outlets at St. Augustine,
      Florida on March 31, 2006,the southeastern Michigan multi-family properties
      on
      June 29, 2006, the Oakview Plaza in Omaha, Nebraska on December 21, 2006 and
      the
      gulf coast industrial portfolio on February 1, 2007. Tenant reimbursements
      increased by approximately $2.0 million, as a result of our acquiring the Belz
      Outlets at St. Augustine, Florida on March 31, 2006, the Oakview Plaza in Omaha,
      Nebraska on December 21, 2006 and the Gulf Coast industrial portfolio on
      February 1, 2007.




41




***Property
      Operating Expenses***




Total
      expenses increased by $4.2 million, to approximately $6.2 million for the nine
      months ended September 30, 2007, compared to approximately $2.0 million for
      the
      same period last year. Increases in property operating expenses were primarily
      the result of the acquisition of new properties on March 31, 2006, June 29,
      2006, December 21, 2006 and February 1, 2007, respectively.





***Real
      Estate Taxes***




Total
      real estate taxes increased by $1.4 million, to approximately $1.9 million
      for
      the nine months ended September 30, 2007, compared to approximately $0.5 million
      for the same period last year. Increases in real estate taxes were primarily
      the
      result of the acquisition of new properties on March 31, 2006, June 29, 2006,
      December 21, 2006 and February 1, 2007, respectively.





***General
      and administrative expenses***




General
      and administrative costs increased by approximately $2.3 million to
      approximately $2.9 million, primarily as a result of the payment of acquisition
      and legal fees in the amount of $1.6 million and $50,000, respectively, related
      to the Lightstone REIT’s investment in the sub lease interest to a ground lease
      of a Manhattan office building. In addition, we incurred asset management fees
      in the amount of $0.5 million related to the Lightstone REIT’s assets at
      September 30, 2007. General and administrative expenses for the nine months
      ended September 30, 2006 totaled $0.6 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 $3.3 million for the nine
      months ended September 30, 2007 to $4.5 million, as compared to $1.2 million
      at
      September 30, 2006 primarily due to the acquisition and financing of the
      properties on March 31, 2006, June 29, 2006, December 21, 2006 and February
      1,
      2007, respectively.




***Other
      Income***




Other
      income increased by approximately $1.4 million due principally to $1.1 million
      of interest income on the short-term investment of cumulative Offering proceeds
      during the nine-month period ended September 30, 2007, as well as approximately
      $0.3 million related to vending and other ancillary revenue sources at our
      properties.




***Interest
      expense***




Interest
      expense increased approximately $4.9 million for the nine months ended September
      30, 2007 to approximately $6.4 million, primarily as a result of the acquisition
      and financing of new properties on June 29, 2006, December 21, 2006 and February
      1, 2007, respectively.







***Equity
      in loss from investment in unconsolidated joint
      venture***




A
      $5.9
      million loss from investment in unconsolidated joint venture for the nine months
      ended September 30, 2007 relates to our investment in the sub lease interest
      to
      a ground lease of a Manhattan office building on January 4, 2007. There were
      no
      investments in unconsolidated joint ventures at September 30, 2006.




42




***Minority
      interest***




The
      loss
      allocated to minority interests, representing approximately $168 and $73 for
      the
      nine months ended September 30, 2007 and 2006, respectively, relates to the
      interests in the Operating Partnership held by our Sponsor.





**Financial
      Condition, Liquidity and Capital Resources**




***Overview:***




We
      intend
      that rental revenue will be the principal source of funds to pay operating
      expenses, debt service, capital expenditures and dividends, excluding
      non-recurring capital expenditures. To the extent that our cash flow from
      operating activities is insufficient to finance non-recurring capital
      expenditures such as property acquisitions, development and construction costs
      and other capital expenditures, we are dependent upon the net proceeds to be
      received from our public offering 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 $148.4 million of outstanding mortgage debt. We intend to limit
      our aggregate long-term permanent borrowings to 75% of the aggregate fair market
      value of all properties unless any excess borrowing is approved by a majority
      of
      the independent directors and is disclosed to our stockholders. We may also
      incur short-term indebtedness having a maturity of two years or
      less.




Our
      charter provides that the aggregate amount of borrowing, both secured and
      unsecured, may not exceed 300% of net assets. In the absence of a satisfactory
      showing that a higher level is appropriate the approval of our board of
      directors is required, and subsequent disclosure is made to our 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, 2007, our total borrowings represented 151% of net
      assets.




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




43




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




We
      may
      also obtain lines of credit to be used to acquire properties. These lines of
      credit will be at prevailing market terms 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.




Total
      asset management and acquisition fees of $3.9 million and approximately $2.0
      million were paid to the Advisor for the three months ended September 30, 2007
      and 2006, respectively. Total
      asset management and acquisition fees of $11.1 million and $2.8 million were
      paid to the Advisor for the nine months ended September 30, 2007 and 2006.As of September 30, 2007, $0.3 million was due to our Property Manager,
      an affiliate of our Advisor, for the reimbursement of property level operating
      expenses; $0.2 million was due to the Advisor for asset management
      fees.




As
      of
      September 30, 2007, we had approximately $27.8 million of cash and cash
      equivalents on hand, $26.4 million of marketable securities and $13.2 million
      of
      refundable real estate deposits. 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):




44


**Nine
                    Months Ended September 30, 2007**
                
                **Nine
                    Months Ended September 30, 2006**Cash
                    flows from operating activities
                
                $
                3,186,515
                
                $
                1,102,752Cash
                    flows used in investing activities
                
                
                (116,656,722
                )
                
                (77,609,681
                )Cash
                    flows from financing activities
                
                
                122,019,616
                
                
                90,905,176Net
                    change in cash
                
                
                8,549,408
                
                
                14,398,247Cash,
                    beginning of the period
                
                
                19,280,710
                
                
                205,030Cash,
                    end of the period
                
                $
                27,830,118
                
                $
                14,603,277


Our
      principal source of cash flow is currently derived from the issuance of our
      common stock and the operation of our rental properties. We intend that our
      properties will provide a relatively consistent stream of cash flow that
      provides us with resources to fund operating expenses, debt service and
      quarterly dividends. Cash flows from operating activities were generated
      primarily from our retail property in St. Augustine, Florida acquired in March
      of 2006, the four residential apartment communities we acquired in June of
      2006,
      the Oakview Plaza in Omaha, Nebraska acquired on December 21, 2006 and the
      Gulf
      Coast industrial portfolio acquired on February 1, 2007, substantially offset
      by
      the payment of a $1.6 million acquisition fee related to our investment in
      a
      joint venture which acquired a sub-leasehold interest in a ground lease to
      an
      office building located at 1407 Broadway, New York, New York.





Our
      principal demands for liquidity are our property operating expenses, real estate
      taxes, insurance, tenant improvements, leasing costs, acquisition and
      development activities, debt service and distributions to our stockholders.
      The
      principal sources of funding for our operations are operating cash flows, the
      sale of properties, and the issuance of equity and debt securities and the
      placement of mortgage loans.




Cash
      used
      in investing activities of $116.4 million resulted primarily from the purchases
      of the Gulf Coast Industrial portfolio on February 1, 2007 and the investment
      in
      the unconsolidated joint venture, as well as a $12.4 million in refundable
      deposit for the option to enter into a joint venture for the purchase an
      industrial property in Sarasota, FL real estate and $0.8 million of funding
      for
      restricted escrows related to acquisitions completed in the fourth quarter
      of
      2007.




Cash
      provided by financing activities is primarily the proceeds from mortgage
      financing ($53.0 million) and the proceeds from the issuance of common stock
      ($71.2 million).




Mortgages
      payable totaled approximately $148.4 million at September 30, 2007, and
      consisted of four secured loans, two of which mature in 2016, and two of which
      mature in 2017. The loans bear interest at a fixed annual rate of 6.09%, 5.96%,
      5.49% and 5.83%, respectively. Monthly installments of interest only are
      required through the first 12, 60, 60 and 60 months, respectively, and monthly
      installments of principal and interest are required throughout the remainder
      of
      their stated terms. At their maturity, approximately $23.4 million, $37.9
      million, $22.6 million and $49.3 million, respectively, will be due, assuming
      no
      prior principal prepayment. Each of the loans is secured by acquired real estate
      and is non-recourse to the Company.




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





Balance
                of 2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              Thereafter
              
              TotalFixed
                  rate mortgages
              
              $
              124,114
              
              $
              344,388
              
              $
              365,957
              
              $
              388,876
              
              $
              661,414
              
              $
              146,494,461
              
              $
              148,379,210




45




***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. We do
      not
      expect SFAS No. 159 to have a material impact on its financial
      statements.




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




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




**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 durative transactions
      to date.




Mortgages
      payable, totaling approximately $148.4 million at September 30, 2007, consists
      of four secured loans, two of which mature in 2016, and two of which mature
      in
      2017. The loans bear interest at a fixed annual rate of 6.09%, 5.96%, 5.49%
      and
      5.83%, respectively. Monthly installments of interest only are required through
      the first 12, 60, 60 and 60 months, respectively, and monthly installments
      of
      principal and interest are required throughout the remainder of their stated
      terms. At their maturity, approximately $23.4 million, $37.9 million, $22.6
      million and $49.3 million, respectively, will be due, assuming no prior
      principal prepayment. Each of the loans is secured by acquired real estate
      and
      is non-recourse to the Company.




46




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





Balance
                of 2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              Thereafter
              
              TotalFixed
                  rate mortgages
              
              $
              124,114
              
              $
              344,388
              
              $
              365,957
              
              $
              388,876
              
              $
              661,414
              
              $
              146,494,461
              
              $
              148,379,210


Our
      combined future earnings, cash flows and fair values relating to financial
      instruments are currently not dependent upon prevalent market rates of interest
      as a result of our having only fixed rate debt and limited cash balances
      available for investment.   The fair value of our debt approximates its
      carrying amount at September 30, 2007.




In
      addition to changes in interest rates, the value of our real estate and real
      estate related investments is subject to fluctuations based on changes in local
      and regional economic conditions and changes in the creditworthiness of lessees,
      which may affect our ability to refinance our debt if necessary. As of September
      30, 2007, the Company has no off-balance sheet arrangements nor has it entered
      into any derivative instruments.




**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. Since the Company
      is
      considered a non-accelerated filer, we will not have to file Section 404 reports
      under the Sarbanes-Oxley Act of 2002 until our Form 10-K filing for
      2007.




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.





**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.




47




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





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




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





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





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





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




On
      April
      22, 2005, our Registration Statement on Form S-11 (File No. 333-117367),
      covering a public offering, which we refer to as the “Offering,” of up to
      30,000,000 common shares for $10 per share (exclusive of 4,000,000 shares
      available pursuant to the Company’s dividend reinvestment plan, 600,000 shares
      that could be obtained through the exercise of selling dealer warrants when
      and
      if issued, and 75,000 shares that are reserved for issuance under the Company’s
      stock option plan) was declared effective under the Securities Act of 1933.
      On
      October 17, 2005, the Company’s filing of a Post-Effective Amendment to its
      Registration Statement was declared effective. The Post-Effective Amendment
      reduced the minimum offering from 1,000,000 shares of common stock to 200,000
      shares of common stock.





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.




48




Through
      September 30, 2007, we had issued approximately 11.8 million shares for gross
      offering proceeds of approximately $114.4 million, exclusive of 149,295 shares
      issued pursuant to our Dividend Reinvestment Plan as of September 30, 2007.
      From
      the effective date of our public offering through September 30, 2007, 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
              
              $
              8,106,600
              
              
              ActualFinders’
                  fees
              
              
              -Expenses
                  paid to or for underwriters
              
              
              -Other
                  expenses to affiliates
              
              
              -Other
                  expenses paid to non-affiliates
              
              
              3,524,028**Total
                  expenses**
              
              $
              11,630,628


The
      net
      offering proceeds to us, after deducting the total expenses paid as described
      above, and after accounting for $11.4 million in contributions by Lightstone
      SLP, LLC and an additional $0.2 million to be recovered through the sale of
      SLP
      Units to an affiliate of our Sponsor, are approximately $114.4 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 $114.4 million, and new mortgage debt in the amount
      of
      $148.4 million we acquired approximately $172.4 million in real estate
      investments (including $4.5 million in acquisition fees) and related assets.
      In
      addition we invested $13.5 million in a joint venture, which acquired a
      sub-leasehold interest in a ground lease to an office building located at 1407
      Broadway, New York, New York. Cumulatively, we have used the net offering
      proceeds as follows:





**Type
                  of Expense Amount  - Actual**
              
              
              **At
                  September 30, 2007**Construction
                  of plant, building and facilities
              
              $
              -Purchase
                  of real estate interests
              
              
              45,066,577Acquisition
                  of other businesses
              
              
              -Repayment
                  of indebtedness
              
              
              -Purchase
                  and installation of machinery and equipment
              
              
              -Working
                  capital (as of September 30, 2007)
              
              
              27,830,118Temporary
                  investments (as of September 30, 2007)
              
              
              24,847,830Other
                  uses (primarily refundable deposit for the purchase of real estate
                  of
                  $13.2 million)
              
              
              16,605,526**Total
                  uses**
              
              $
              114,350,051


As
      of
      November 8, 2007, we have sold approximately 12.4 million shares at an
      aggregate offering price of $122.2 million.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




None.





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




None.





**ITEM
      5. OTHER INFORMATION.**




None.




49




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


**ITEM
      6. EXHIBITS**





**Exhibit**
              **Number**
            
            **Description**3.1
            
            Amended
                and Restated Charter of Lightstone Value Plus Real Estate Investment
                Trust, Inc. (filed as Exhibit 3.1 to Post-Effective Amendment No.
                1 to the
                Form S-11 Registration Statement of Lightstone Value Plus Real Estate
                Investment Trust, Inc. (File No. 333-117367 as amended to date, the
                “Registration Statement”) on May 23, 2005 and incorporated herein by
                reference).3.2
            
            Bylaws
                of Lightstone Value Plus Real Estate Investment Trust, Inc. (filed
                as an
                exhibit to Current Report on Form 8-K that we filed with the Securities
                and Exchange Commission on October 19, 2007).4.1
            
            Amended
                and Restated Agreement of Limited Partnership of Lightstone Value
                Plus
                REIT LP (filed as Exhibit 4.1 to Post-Effective Amendment No. 1 to
                the
                Registration Statement on May 23, 2005 and incorporated herein by
                reference)**.**4.2
            
            Specimen
                Certificate for the Shares****(
                filed as Exhibit 4.2 to the Registration Statement on July 14, 2004
                and
                incorporated herein by reference)**.**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





50




**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, 2007
            By:
            /s/ David
                LichtensteinDavid
                LichtensteinChairman
                and Chief Executive Officer
              (Principal
                Executive Officer)


Date: November
                  14, 2007
              By:
              /s/ Jenniffer
                  CollinsJenniffer
                  CollinsInterim
                  Chief Financial Officer and Treasurer
                (Duly
                  Authorized Officer and Principal Financial and Accounting
                  Officer)
  51