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, 2010





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 333-151532




LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST II, INC.


(Exact
Name of Registrant as Specified in Its Charter)





Maryland
            
            83-0511223(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (I.R.S.
      Employer
              Identification
      No.)





1985
      Cedar Bridge Avenue, Suite 1Lakewood,
      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 
  ̈      No   x





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes
  ̈
     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    x




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


Yes 
 ̈  No x





As of
November 5, 2010, there were approximately 3.3 million outstanding shares of
common stock of Lightstone Value Plus Real Estate Investment Trust II, Inc.,
including shares issued pursuant to the distribution reinvestment plan.









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





INDEX




PagePART I
            
            FINANCIAL
      INFORMATIONItem 1.
            
            Financial
      StatementsConsolidated
      Balance Sheets as of  September 30, 2010 (unaudited) and
      December 31, 2009
            
            3Consolidated
      Statements of Operations (unaudited) for the Three and Nine Months Ended
      September 30, 2010 and 2009
            
            4Consolidated
      Statement of Stockholders’ Equity and Comprehensive Loss (unaudited) for
      the Nine Months Ended September 30, 2010
            
            5Consolidated
      Statements of Cash Flows (unaudited) for the Nine Months Ended September
      30, 2010 and 2009
            
            6Notes
      to Consolidated Financial Statements
            
            7Item 2.
            
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            13Item 3.
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            22Item 4T.
            
            Controls
      and Procedures
            
            22PART II
            
            OTHER
      INFORMATIONItem
      1.
            
            Legal
      Proceedings
            
            22Item
      2.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            22Item
      3.
            
            Defaults
      Upon Senior Securities
            
            23Item
      4.
            
            Removed
      and Reserved
            
            23Item
      5.
            
            Other
      Information
            
            23Item
      6.
            
            Exhibits
            
            24





2





PART I. FINANCIAL INFORMATION,
CONTINUED:




ITEM
1. FINANCIAL STATEMENTS, CONTINUED:





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


CONSOLIDATED
BALANCE SHEETS





September
      30,
                2010
              
              
              December
      31,
                2009(Unaudited)AssetsInvestments
      in unconsolidated affiliated real estate entity
              
              $
              2,383,929
              
              
              $
              -Investments
      in unconsolidated real estate entity, at cost
              
              
              1,690,000
              
              
              
              1,690,000Cash
      and cash equivalents
              
              
              14,040,990
              
              
              
              8,596,008Restricted
      escrow
              
              
              877,737
              
              
              
              -Mortgage
      loan receivable, net of discount of $10.8 million and zero,
      respectively
              
              
              7,345,587
              
              
              
              -Prepaid
      expenses and other assets
              
              
              341,753
              
              
              
              109,447Total
      Assets
              
              $
              26,679,996
              
              
              $
              10,395,455Liabilities
      and Stockholders' EquityAccounts
      payable and other accrued expenses
              
              $
              1,368,501
              
              
              $
              1,110,312Due
      to sponsor
              
              
              4,014
              
              
              
              1,569,001Distributions
      payable
              
              
              474,074
              
              
              
              157,177Total
      liabilities
              
              
              1,846,589
              
              
              
              2,836,490Commitments
      and contingencies (Note 9)Stockholders'
      Equity:Company's
      stockholders' equity:Preferred
      shares, $0.01 par value, 10,000,000 shares authorized, none issued and
      outstanding
              
              
              -
              
              
              
              -Common
      stock, $0.01 par value; 100,000,000 shares authorized, 3,151,453 and
      1,236,037 shares issued and outstanding in 2010 and 2009,
      respectively
              
              
              31,514
              
              
              
              12,360Additional
      paid-in-capital
              
              
              24,883,750
              
              
              
              8,616,032Subscription
      receivable
              
              
              (575,693
              )
              
              
              (665,882
              )Accumulated
      distributions in excess of net loss
              
              
              (2,007,992
              )
              
              
              (405,503
              )Total
      Company stockholder’s equity
              
              
              22,331,579
              
              
              
              7,557,007Noncontrolling
      interest
              
              
              2,501,828
              
              
              
              1,958Total
      Stockholders' Equity
              
              
              24,833,407
              
              
              
              7,558,965Total
      Liabilities and Stockholders' Equity
              
              $
              26,679,996
              
              
              $
              10,395,455




The
accompanying 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 II, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)





For
      the Three Months Ended
                September
      30,
              
              
              For
      the Nine Months Ended
                September
      30,2010
              
              
              2009
              
              
              2010
              
              
              2009Expenses:General
      and administrative costs
              
              $
              233,813
              
              
              $
              29,947
              
              
              $
              627,384
              
              
              $
              107,519Total
      operating expenses
              
              
              233,813
              
              
              
              29,947
              
              
              
              627,384
              
              
              
              107,519Operating
      loss
              
              
              (233,813
              )
              
              
              (29,947
              )
              
              
              (627,384
              )
              
              
              (107,519
              )Interest
      income
              
              
              85,557
              
              
              
              -
              
              
              
              228,389
              
              
              
              -Loss
      from investment in unconsolidated affiliated real estate
      entity
              
              
              (64,116
              )
              
              
              -
              
              
              
              (116,071
              )
              
              
              -Net
      loss
              
              
              (212,372
              )
              
              
              (29,947
              )
              
              
              (515,066
              )
              
              
              (107,519
              )Less:
      net loss attributable to noncontrolling interest
              
              
              8
              
              
              
              -
              
              
              
              32
              
              
              
              -Net
      loss attributable to Company's common shares
              
              $
              (212,364
              )
              
              $
              (29,947
              )
              
              $
              (515,034
              )
              
              $
              (107,519
              )Net
      loss per Company's common share, basic and diluted
              
              $
              (0.07
              )
              
              $
              (1.50
              )
              
              $
              (0.23
              )
              
              $
              (5.38
              )Weighted
      average number of common shares outstanding, basic and
    diluted
              
              
              2,898,986
              
              
              
              20,000
              
              
              
              2,276,274
              
              
              
              20,000




The
accompanying 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 II, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS


(UNAUDITED)




Preferred
      Shares
              
              
              Common
      Shares
              
              
              Additional
              
              
              
              
              
              AccumulatedDistributions
      in
              
              
              TotalCompany
              
              
              TotalPreferredShares
              
              
              Amount
              
              
              CommonShares
              
              
              Amount
              
              
              Paid-InCapital
              
              
              SubscriptionReceivable
              
              
              Excess
      of Net Loss
              
              
              Stockholders'Equity
              
              
              NoncontrollingInterests
              
              
              TotalEquityBALANCE,
      December 31, 2009
              
              
              -
              
              
              $
              -
              
              
              
              1,236,037
              
              
              $
              12,360
              
              
              $
              8,616,032
              
              
              $
              (665,882
              )
              
              $
              (405,503
              )
              
              $
              7,557,007
              
              
              $
              1,958
              
              
              $
              7,558,965Comprehensive
      loss:Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (515,034
              )
              
              
              (515,034
              )
              
              
              (32
              )
              
              
              (515,066
              )Total
      comprehensive loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (515,034
              )
              
              
              (515,034
              )
              
              
              (32
              )
              
              
              (515,066
              )Distributions
      declared
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,087,455
              )
              
              
              (1,087,455
              )
              
              
              -
              
              
              
              (1,087,455
              )Distributions
      paid to noncontrolling interests
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (98
              )
              
              
              (98
              )Contribution
      by noncontrolling interest
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,500,000
              
              
              
              2,500,000Proceeds
      from offering
              
              
              
              
              
              
              
              
              
              
              1,876,281
              
              
              
              18,763
              
              
              
              18,718,832
              
              
              
              90,189
              
              
              
              
              
              
              
              18,827,784
              
              
              
              -
              
              
              
              18,827,784Selling
      commissions and dealer manager fees
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,710,470
              )
              
              
              
              
              
              
              
              
              
              
              (1,710,470
              )
              
              
              
              
              
              
              (1,710,470
              )Other
      offering costs
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,112,032
              )
              
              
              
              
              
              
              
              
              
              
              (1,112,032
              )
              
              
              
              
              
              
              (1,112,032
              )Proceeds
      from distribution reinvestment program
              
              
              
              
              
              
              
              
              
              
              39,135
              
              
              
              391
              
              
              
              371,388
              
              
              
              
              
              
              
              
              
              
              
              371,779
              
              
              
              
              
              
              
              371,779BALANCE,
      September 30, 2010
              
              
              -
              
              
              $
              -
              
              
              
              3,151,453
              
              
              $
              31,514
              
              
              $
              24,883,750
              
              
              $
              (575,693
              )
              
              $
              (2,007,992
              )
              
              $
              22,331,579
              
              
              $
              2,501,828
              
              
              $
              24,833,407




The
accompanying 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 II, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)





For
      the Nine Months Ended
                September
      30,2010
              
              
              2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (515,066
              )
              
              $
              (107,519
              )Adjustments
      to reconcile net loss to net cash provided by/(used in) operating
      activities:Equity
      in loss from investment in unconsolidated real estate
    entity
              
              
              116,071
              
              
              
              -Changes
      in assets and liabilities:Increase
      in restricted escrow
              
              
              (539,568
              )
              
              
              -Increase
      in prepaid expenses and other assets
              
              
              (232,306
              )
              
              
              -(Decrease)/increase
      in accounts payable and other accrued expenses
              
              
              (55,356
              )
              
              
              719,330Increase
      in due to sponsor
              
              
              63,939
              
              
              
              28,075Net
      cash provided by/(used) in operating activities
              
              
              (1,162,286
              )
              
              
              639,886CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of mortgage loan receivable
              
              
              (7,857,000
              )
              
              
              -Collections
      on mortgage loan receivable
              
              
              511,413
              
              
              
              -Net
      cash used in investing activities
              
              
              (7,345,587
              )
              
              
              -CASH
      FLOWS FROM FINANCING ACTIVITIES:Decrease
      due from sponsor
              
              
              23,641
              
              
              
              -Proceeds
      from issuance of common stock
              
              
              18,827,784
              
              
              
              -Payment
      of commissions and offering costs
              
              
              (4,499,692
              )
              
              
              -Distributions
      to noncontrolling interests
              
              
              (98
              )
              
              
              -Distributions
      to common stockholders
              
              
              (398,780
              )
              
              
              -Net
      cash provided by financing activities
              
              
              13,952,855
              
              
              
              -Net
      change in cash and cash equivalents
              
              
              5,444,982
              
              
              
              639,886Cash
      and cash equivalents, beginning of period
              
              
              8,596,008
              
              
              
              99,703Cash
      and cash equivalents, end of period
              
              $
              14,040,990
              
              
              $
              739,589Supplemental
      disclosure of cash flow information:Distributions
      declared
              
              $
              1,087,455
              
              
              $
              -Value
      of shares issued from distribution reinvestment program
              
              $
              371,779
              
              
              $
              -Non-cash
      commissions and other offering costs in accounts payable and other accrued
      expenses
              
              $
              925,015
              
              
              $
              -Subscription
      receivable
              
              $
              90,189
              
              
              $
              -Investment
      in real estate entity in exchange for issuance of subordinated profit
      interests
              
              $
              2,500,000
              
              
              $
              -Restricted
      escrow deposits and related liability initially established related to
      acquisition of mortgage loan receivable
              
              $
              338,169
              
              
              $
              -





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




6




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


1.
            Organization




Lightstone
Value Plus Real Estate Investment Trust II, Inc., a Maryland corporation (the
“Company”) was formed on April 28, 2008. 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 North America, as well
as real estate-related securities, such as collateralized debt obligations,
commercial mortgage-backed securities and mortgage and mezzanine loans secured,
directly or indirectly, by the same types of properties which it may acquire
directly.





The
Company is structured as an umbrella partnership real estate investment trust,
or UPREIT, and substantially all of the Company’s current and future business is
and will be conducted through Lightstone Value Plus REIT II LP, a Delaware
limited partnership formed on April 30, 2008 (the “Operating
Partnership”).





The
Company is offering to sell a maximum of 51,000,000 shares of common stock, at a
price of $10 per share (exclusive of 6.5 million shares available pursuant to
the Company’s distribution reinvestment plan, 75,000 shares that are reserved
for issuance under the Company’s stock option plan and 255,000 shares reserved
for issuance under the Company’s Employee and Director Incentive Restricted
Share Plan). The Company’s Registration Statement on Form S-11 (the
“Registration Statement”) was declared effective under the Securities Act of
1933 on February 17, 2009. Lightstone Securities, LLC (the “Dealer Manager”), an
affiliate of The Lightstone Group (the “Sponsor”), is serving as the dealer
manager of the Company’s public offering (the “Offering”).




The
Company issued 20,000 shares to Lightstone Value Plus REIT II, LLC, “(the
Advisor”) on May 20, 2008, for $10 per share.  In addition, as of
September 30, 2009, the Company had reached its minimum offering by receiving
subscriptions of its common shares, representing gross offering proceeds of
approximately $6.5 million, and investors were admitted as stockholders on
October 1, 2009. Through September 30, 2010, cumulative gross offering proceeds
of $30.9 million were released to the Company.  The Company invested
the proceeds from this sale and proceeds from the Advisor in the Operating
Partnership, and as a result, held a 99.99% general partnership interest at
September 30, 2010 in the Operating Partnership’s common units.  The
Operating Partnership commenced operations as of October 1, 2009.




Noncontrolling
Interest – Partners of Operating Partnership





On May
20, 2008, the Advisor 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.





Lightstone
SLP II LLC, which is wholly owned and controlled by The Lightstone Group (our
“Sponsor”) will purchase subordinated general partner participation units
(“subordinated profits interests”) in the Operating Partnership at a cost of
$100,000 per unit for each $1,000,000 in subscriptions up to ten percent of the
offering proceeds on a semi-annual basis.  Lightstone SLP II LLC may
elect to purchase the subordinated profits interests with either cash or an
interest in real property of equivalent value.  The proceeds received
from the cash sale of the subordinated profits interests will be used to offset
payments made by Company from offering proceeds to pay the dealer manager fees
and selling commissions and other offering costs.  On June 30, 2010,
Lightstone SLP II LLC purchased 25 subordinated profits interests valued at $2.5
million by contributing a 26.25% interest in Brownmill LLC (see Note 3 for
further discussion regarding Brownmill LLC).





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 the Company exercises
financial and operating control). As of September 30, 2010, the Company had a
99.99% general partnership interest in the common units of the Operating
Partnership. All inter-company balances and transactions have been eliminated in
consolidation.




7


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


The
accompanying unaudited interim consolidated financial statements and related
notes should be read in conjunction with the audited Consolidated Financial
Statements of  the Company and related notes as contained in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2009. The unaudited interim financial statements include all adjustments
(consisting only of normal recurring adjustments) and accruals necessary in the
judgment of management for a fair statement of the results for the periods
presented.  The accompanying unaudited consolidated financial
statements of Lightstone Value Plus Real Estate Investment Trust II, Inc. and
its Subsidiaries (collectively, the “Company”) have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements.





The
unaudited consolidated statements of operations for interim periods are not
necessarily indicative of results for the full year or any other
period.




New Accounting
Pronouncements





In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 167, “Amendments to FASB
Interpretation No. 46(R)”, which was primarily codified into Topic 810 in the
Accounting Standards Codification (“ASC”).  This standard requires
ongoing assessments to determine whether an entity is a variable entity and
requires qualitative analysis to determine whether an enterprise’s variable
interest(s) give it a controlling financial interest in a variable interest
entity. In addition, it requires enhanced disclosures about an enterprise’s
involvement in a variable interest entity. This standard is effective for the
fiscal year that begins after November 15, 2009. The Company adopted this
standard on January 1, 2010 and the adoption did not have a material impact on
the Company’s consolidated financial statements.





In
January 2010, the FASB issued FASB Accounting Standards Update (“ASU”) No.
2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements”.  ASU No. 2010-06 amends
ASC 820 and clarifies and provides additional disclosure requirements related to
recurring and non-recurring fair value measurements. This ASU becomes effective
for the Company on January 1, 2010. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.





The
Company has determined that all other recently issued accounting pronouncements
will not have a material impact on its consolidated financial position, results
of operations and cash flows, or do not apply to its operations.





3.
            Investment
      in Unconsolidated Affiliated Real Estate
Entity





The
entity listed below is partially owned by the Company.  The Company
accounts for this investment under the equity method of accounting as the
Company exercises significant influence, but does not control this entity. A
summary of the Company’s investment in unconsolidated affiliated real estate
entity is as follows:




As
      ofReal
      Estate Entity
              
              Date
      of Ownership
              
              Ownership
                %
              
              
              September
      30,
                2010
              
              
              December
      31,
                2009Brownmill
      LLC ("Brownmill")
              
              June
      30, 2010
              
              
              26.25
              %
              
              $
              2,383,929
              
              
              $
              -Total
      Investment in unconsolidated affiliated real estate entity
              
              
              
              
              
              
              
              $
              2,383,929
              
              
              $
              -


Brownmill





On June
30, 2010, the Company, through its Operating Partnership, entered into a
Contribution Agreement between the Operating Partnership and Lightstone Holdings
LLC (“LGH”), a wholly-owned subsidiary of our Sponsor, pursuant to which LGH
contributed to the Operating Partnership a 26.25% equity interest in Brownmill
(the “Brownmill Interest”) in order to fulfill the Sponsor’s commitment to
purchase subordinated profit interests with cash or contributed property. In
exchange, the Operating Partnership issued 25 units of subordinated profits
interests, at $100,000 per unit (at total value of $2.5 million), to Lightstone
SLP II LLC.  The preliminary fair value of the Brownmill Interest, as
of April 1, 2010, as determined by the Company is approximately $8.4 million of
which $2.5 million is in the form of equity and $5.9 million is in the form of
mortgage indebtedness.





8


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


As a
result of this contribution in exchange for subordinated profit interests, as of
September 30, 2010, the Operating Partnership owns a 26.25% membership interest
in Brownmill. The Brownmill Interest is a non-managing interest. An affiliate of
the Company’s Sponsor, is the majority owner and manager of
Brownmill.  Profit and cash distributions will be allocated in
accordance with each investor’s ownership percentage.  The Company
will allocate its portion of profit and cash distributions beginning as of April
1, 2010 based upon the original date Lightstone SLP II LLC was to purchase the
subordinated profit interests.





The
Company recorded this investment in accordance with the equity method of
accounting.  Accordingly, its portion of Brownmill’s total
indebtedness is not included in the investment.   In connection
with the contribution of the Brownmill Interest, the Company did not incur any
transactions fees.





Brownmill
owns two retail properties known as Browntown Shopping Center (“Browntown”) and
Millburn Mall (“Millburn”, and together with Browntown, (the “Brownmill
Properties”), which are located in Old Bridge, NJ and Vauxhall, NJ,
respectively.   The Brownmill Properties collectively represent
156,002 square feet of total gross leasable area, and were 77.0% occupied as of
September 30, 2010. The Brownmill Properties are cross-collateralized,
collateralizing a non-recourse loan maturing on October 8, 2015. The loan has a
10-year term and monthly principal and interest payments of $133,051 through its
maturity date.  The loan bears a fixed interest rate of 5.36%. The
aggregate outstanding balance of the Brownmill Loan was $22.1 million as of
September 30, 2010, of which $19.8 million will be due upon maturity assuming no
prior principal prepayment.





Brownmill
Financial Information





The
Company’s carrying value of its Brownmill Interest differs from its share of
member’s equity reported in the condensed balance sheet of Brownmill LLC due to
the Company’s basis of its investment in excess of the historical net book value
of Brownmill. The Company’s additional basis allocated to depreciable assets is
recognized on a straight-line basis over the lives of the appropriate
assets.  The Company’s Brownmill Interest additional basis allocation
to depreciable assets is a preliminary estimate and could change based upon the
final fair value to net book value analysis, which is expected to be completed
once all information is available.





The
following table represents the unaudited condensed income statement for
Brownmill LLC for the periods indicated:




Three
      Months
                Ended
      September
                30,
      2010
              
              
              April
      1, 2010
                through
                September
      30,
                2010Revenue
              
              $
              888,128
              
              
              $
              1,788,423Property
      operating expenses
              
              
              368,486
              
              
              
              729,625Depreciation
      and amortization
              
              
              219,631
              
              
              
              437,317Operating
      income
              
              
              300,011
              
              
              
              621,481Interest
      expense and other, net
              
              
              (310,642
              )
              
              
              (615,650
              )Net
      income/(loss)
              
              $
              (10,631
              )
              
              $
              5,831Company's
      share of net income/(loss)
              
              $
              (2,790
              )
              
              $
              1,531Additional
      depreciation and amortization expense (1)
              
              
              (61,326
              )
              
              
              (117,602
              )Company's
      loss from investment
              
              $
              (64,116
              )
              
              $
              (116,071
              )





1)        Additional
depreciation and amortization expense relates to the amortization of the
difference between the cost of the Brownmill Interest and the amount of the
underlying equity in net assets of Brownmill.





9


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


The
following table represents the unaudited condensed balance sheet for
Brownmill:




As
      of
                September
      30, 2010Real
      estate, at cost (net)
              
              $
              17,912,162Cash
      and restricted cash
              
              
              398,830Other
      assets
              
              
              1,655,966Total
      assets
              
              $
              19,966,958Mortgage
      payable
              
              $
              22,100,688Other
      liabilities
              
              
              636,464Members'
      deficiency
              
              
              (2,770,194
              )Total
      liabilities and members' deficiency
              
              $
              19,966,958





4.
            Investment
      in Unconsolidated Real Estate
Entity





In
November 2009, the Company, through its Operating Partnership, acquired for
approximately $1.7 million a 32.42% Class D Member Interest in HG CMBS Finance,
LLC (“HGF”), a real estate limited liability company that primarily invests in
commercial mortgage-backed securities. In accordance with HGF’s operating
agreement and subscription agreement, (1). HGI Debt Opportunity Fund, LLC, the
manager of HGF (the “Manager”), has complete power and authority for the
management and operation of HGF’s assets and business; (2). The Company’s Class
D Member Interest is non-redeemable and cannot be assigned, sold, encumbered,
transferred or otherwise disposed of in whole or in part without the prior
written consent of the Manager; (3). As a Class D Member, the Company has no
rights in or with respect to any other Class of membership interest in HGF
(including any rights to any investments acquired by HGF for the benefit of any
other Class; and (4). All income, losses and distributable process of each Class
are shared by the Members of such Class on a pro rata basis according to their
respective member interest.  The Company accounts for its Class D
Member Interest in HGF using the cost method as the Company is a passive
investor and does not have any influence or control. As of September 30, 2010
and December 31, 2009, such investment was approximately $1.7 million and $1.7
million, respectively, which was classified as investment in unconsolidated real
estate entity, at cost on the consolidated balance sheet.





The Class
D Members in HGF as of November 2009 own collectively two CMBS bonds with face
values of approximately $16.6 million and $13.6 million, respectively. The bonds
were acquired by HGF specifically for its Class D members and were financed with
$25.7 million of financing from Term Asset Back Securities Loan Facility (TALF)
issued by the Federal Reserve Bank with an interest rate of 2.72% per annum and
cash of $5.2 million. The Company’s share is $1.7 million. The face values of
the bonds are held as collateral against the TALF loans. The bonds accrue
interest at a coupon rate of 5.67% and 5.61% per annum, respectively, and have a
weighted average life of 2.5 years.  For the three and nine months
ended September 30, 2010, the Company recorded interest income, net of fees
related to its investment in HGF, of $85,557 and $228,389, respectively, within
interest income on the consolidated statements of operations.





On
October 28, 2010, HGF sold the two CMBS bonds and the Company received net cash
proceeds of $1,866,907.





5.
            Mortgage
      Loan Receivable and Restricted
Escrow





On June
29, 2010, the Company, through its Operating Partnership, entered into an
Assignment and Assumption Agreement (the “Assignment”) with Citigroup Global
Markets Realty Corp. (the “Seller”).  Under the terms of the
Assignment, the Operating Partnership purchased from the Seller a fixed-rate of
5.916%, nonrecourse mortgage note (the “Loan”) for $7.9 million, with an
estimated loan-to-value ratio of 56.6% at that date based on our internal
valuation of the underlying hotel property (see further discussion about the
hotel property below).  In addition, the Seller agreed to indemnify
the Operating Partnership from all existing litigation. As a result of the
Assignment, the Operating Partnership assumed all rights and obligations, with
the exception of the existing litigation, in connection with the Loan, and
became the lender under the Loan.  Total legal and other closing costs
of the Assignment were approximately $88,407, including an acquisition fee equal
to 0.95% of the purchase price, or approximately $74,600, payable to our
advisor.  These fees were expensed during the second quarter of 2010
within general and administrative costs on the consolidated statements of
operations.





10


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


The Loan
was originated by the Seller in August 2007 with an original principal balance
of $18.7 million, and is collateralized by a 141-room limited service hotel
located in East Rutherford, NJ.  The hotel is currently operating
under a Marriott Franchise Agreement as a Fairfield Inn. The Loan was scheduled
to mature in September 2017 under its original term, and has been in default
since February 2009.





The
Company initially recorded the Loan as a mortgage loan receivable at $7.9
million, net of a discount of $10.8 million, on its consolidated balance
sheet.   As the Loan is in default, the Company is not amortizing
the discount as the Company intends to take ownership through foreclosure or
negotiate a transfer of ownership with the existing borrower





The
borrower under the loan agreement is required to transfer any excess cash to the
Company on a monthly basis. The Company first will apply the excess cash to
required funding for taxes and insurance and other escrow related disbursements
and any remaining cash will be applied to outstanding principal and the excess,
if any, will be recognized as interest income.  At the date of the
acquisition of the loan, escrow deposits of $0.3 million held by the Seller
were transferred to the Company.  The escrow deposits were $0.9
million as of September 30, 2010 and are recorded on the consolidated balance
sheet as restricted escrows.  The Company has also recorded an
offsetting liability for these disbursements in the consolidated balance sheet
within accounts payable and other accrued expenses. Additionally, during
the nine months ended September 30, 2010, the Company applied $0.5 million of
excess cash received to outstanding principal.  As of September 30,
2010, the balance of the mortgage loan receivable was $7.3 million on our
consolidated balance sheet.





6.
            Selling
      Commission, Dealer Manager Fees and Other Offering
  Costs





Selling
commissions and dealer manager fees are paid to the Dealer Manager, pursuant to
various agreements, and other third-party offering expenses such as registration
fees, due diligence fees, marketing costs, and professional fees are accounted
for as a reduction against additional paid-in capital (“APIC”) as costs are
incurred.  Any organizational costs are accounted for as general and
administrative costs. For the three and nine months ended September 30, 2010,
the Company  incurred approximately $0.5 million and $1.7 million,
respectively, in selling commissions and dealer manager fees and $0.3 million
and $1.1 million, respectively, of other offering costs.  Since
commencement of its initial public offering through September 30, 2010, the
Company has incurred approximately $2.8 million in selling commissions and
dealer manager fees and $3.8 million of other offering costs.





7.
            Subscription
      Receivable




As of
September 30, 2010 and December 31, 2009, the Company recorded a subscription
receivable of $0.6 million and $0.7 million, respectively, as a reduction in the
Company’s equity on the consolidated balance sheets.   The
subscription receivable relates to shares issued to the Company’s shareholders
for which the proceeds have not yet been received by the Company solely due to a
fact of timing of transfers from the escrow agent holding the
funds.





8.
            Related
      Party Transactions





In
addition to certain related party payments made to the Dealer Manager (see Note
6), the Company also has agreements with the Advisor and Lightstone Value Plus
REIT Management LLC (the “Property Manager”) to pay certain fees in exchange for
services performed by these entities and other affiliated entities. The
Company’s ability to secure financing and subsequent real estate operations are
dependent upon its Advisor, Property Manager and their affiliates to perform
such services as provided in these agreements.





The
following table represents the fees incurred associated with the payments to the
Company’s Advisor and Property Manager for the periods indicated:




For
      the Three
                Months
      Ended
                September
      30,
                2010
              
              
              For
      the Nine
                Months
      Ended
                September
      30,
                2010Acquisition
      fees
              
              $
              -
              
              
              $
              74,642Asset
      management fees
              
              
              4,014
              
              
              
              12,041Property
      management fees
              
              
              -
              
              
              
              -Acquisition
      expenses reimbursed to Advisor
              
              
              -
              
              
              
              -Development
      fees
              
              
              -
              
              
              
              -Leasing
      commissions
              
              
              -
              
              
              
              -Total
              
              $
              4,014
              
              
              $
              86,683
  11
 LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST II, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (Unaudited)


During
the three and nine months ended September 30, 2009, the Company did not incur
any fees associated with payments to its Advisor or its Property
Manager.





As of
September 30, 2010 and December 31, 20009, $4,014 and $1,569,001, respectively,
was due to our Sponsor for unpaid asset management fees.  As of
September 30, 2010, the Company owns a 26.25% membership interest in
Brownmill.  Affiliates of the Company’s Sponsor are the majority
owners and manager of Brownmill.  See Note 3.





10.
            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 carrying amount of the mortgage loan receivable approximates
the fair value based upon current market information that would have been used
by a market participant to estimate the fair value of such loan.





11.
            Commitments
      and Contingencies





Legal
Proceedings





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





12.
            Distributions





On
March 23, 2010, the Company’s Board of Directors (the “Board”) declared the
quarterly dividend for the three-month period ended March 31, 2010 in the amount
of $0.00178082191 per share per day which equals a daily amount that, if paid
each day for a 365-day period, of 6.5% annualized rate based on a share price of
$10.00 payable to stockholders of record on the close of business each day
during the quarter.  The distribution was paid in full on April 15,
2010 using a combination of cash (approximately $0.1 million) and 13,261
shares  ($0.1 million) issued pursuant to the Company’s Dividend
Reinvestment Program (the “DRIP”), at a discounted price of $9.50 per
share.  We used proceeds from our offering of common stock to fund the
cash portion of our distributions.





On July
9, 2010, the Board declared the quarterly dividend for the three-month period
ended June 30, 2010 in the amount of $0.00178082191 per share per day which
equals a daily amount that, if paid each day for a 365-day period, of 6.5%
annualized rate based on a share price of $10.00 payable to stockholders of
record on the close of business each day during the quarter.  The
distribution was paid in full on July 15, 2010 using a combination of cash
(approximately $0.2 million) and18,187 shares  ($0.2 million) issued
pursuant to the Company’s DRIP, at a discounted price of $9.50 per
share.  We used proceeds from our offering of common stock to fund the
cash portion of our distributions.





On
September 16, 2010, the Board declared the quarterly distribution for the
three-month period ended September 30, 2010 in the amount of $0.00178082191 per
share per day which equals a daily amount that, if paid each day for a 365-day
period, of 6.5% annualized rate based on a share price of $10.00 payable to
stockholders of record on the close of business each day during the
quarter.  The distribution was paid in full on October 29, 2010 using
a combination of cash (approximately $0.2 million) and 24,619 shares
(approximately $0.2 million) of the Company’s common stock issued pursuant to
the Company’s DRIP, at a discounted price of $9.50 per share.   We used
proceeds from our offering of common stock to fund the cash portion of our
distributions.





The
amount of distributions paid to our stockholders in the future will be
determined by our Board 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.





12




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 II, Inc. and the notes thereto. As used herein, the terms “we,”
“our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust II,
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 II, 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, our lack of operating history,
the availability of cash flows from operations to pay distributions, changes in
governmental, tax, real estate and zoning laws and regulations, 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 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 Company 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 the Sponsor and their
affiliates, failure of joint venture relationships, significant costs related to
environmental issues as well as other risks listed from time to time in this
Form 10-Q, our Form 10-K, our Registration Statement on Form S-11 (File No.
333-151532), 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.




13




Overview





Lightstone
Value Plus Real Estate Investment Trust II, Inc. (the “Company”) intends to
acquire and operate commercial, residential and hospitality properties,
principally in North America. Principally through the Lightstone Value Plus REIT
II, LP, (the “Operating Partnership”), our acquisitions may include both
portfolios and individual properties. We expect that our commercial holdings
will consist of retail (primarily multi-tenanted shopping centers), lodging,
industrial and office properties and that our residential properties located
either in or near major metropolitan areas.





Capital
required for the purchase of real estate and real estate related investments
will be obtained from the public offering of up to 51,000,000 common shares for
$10 per share, and from any indebtedness that we may incur in connection with
the acquisition of any real estate and real estate related investments
thereafter. A Registration Statement on Form S-11 covering our public offering
was declared effectiveunder the Securities Act
of 1933on February
17, 2009.  The offering commenced on April 24, 2009 and is ongoing. We
are dependent upon the net proceeds from the offering to conduct our proposed
activities.





We do not
have employees. We entered into an advisory agreement dated February 17, 2009
with Lightstone Value Plus REIT II 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.





Current
Environment





Our
operating results as well as our investment opportunities are impacted primarily
by the health of the North American economies.  Our business and
financial performance may be adversely affected by current and future economic
conditions, such as a reduction in the availability of credit, financial markets
volatility, and recession.





U.S.
and global credit and equity markets have recently undergone significant
disruption, making it difficult for many businesses to obtain financing on
acceptable terms or at all. As a result of this disruption, in general there has
been an increase in the costs associated with the borrowings and refinancing as
well as limited availability of funds for refinancing.  If these
conditions continue or worsen, our cost of borrowing may increase and it may be
more difficult to finance investment opportunities in the short
term.





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





Portfolio
Summary –




Location
              
              Year
      Built
              
              Leasable
      Square
                Feet
              
              
              Percentage
      Occupied asof
                September
      30,
                2010
              
              Annualized
      Revenues based
                on
      rents at
                September
      30,
                2010(2)RetailUnconsolidated
      Affiliated Real Estate Entity:Brownmill
      LLC (2 retail properties) (1)
              
              Old
      Bridge and Vauxhall, New Jersey
              
              1962
              
              
              156,002
              
              
              
              77.0
              %
              $2.6
      million


(1) On
June 30, 2010, the Company received a 26.25% interest in Brownmill LLC in
exchange for issuance of subordinated profits interests. See Note 3 of notes to
consolidated financial statements.
 
 (2)
Annualized revenues are based on rents for the period commencing April 1, 2010.
See Note 3 of notes to consolidated financial statements.
  14




Critical
Accounting Policies and Estimates




There
were no material changes during the nine months ended September 30, 2010 to our
critical accounting policies as reported in our Annual Report on Form 10-K, for
the year ended December 31, 2009.





Results
of Operations




We
commenced operations on October 1, 2009 upon the release of our offering
proceeds from escrow.   In November 2009, we acquired an
investment of a 32.42% Class D Member Interest in HG CMBS Finance, LLC and a
real estate limited liability company that invests in commercial mortgage-backed
securities.  In June 2010 , we acquired a mortgage loan, which we
believe to be fully collateralized by a limited service hotel (see Note 4 of the
notes to consolidated financial statements), and obtained a 26.25% equity
interest in Brownmill LLC, which owns two retail properties (see Note 3 of the
notes to consolidated financial statements).





The
Company’s primary financial measure for evaluating each of its properties will
be net operating income (“NOI”).  NOI represents rental income less
property operating expenses, real estate taxes and general and administrative
expenses.  The Company believes that NOI is helpful to investors as a
supplemental measure of the operating performance of a real estate company
because it will be a direct measure of the actual operating results of the
Company’s properties.





For the Three Months Ended
September 30, 2010 vs. September 30, 2009





Consolidated





General
and administrative expenses





General
and administrative costs increased by $0.2 million to $0.2 million for the three
months ended September 30, 2010 compared to $29,947 for the three months ended
September 30, 2009 primarily due to insurance costs and consulting and
accounting fees which were incurred during the 2010 period but not during the
2009 period because we did not commence operations until October
2009.





Interest
Income




Interest
income increased by $0.1 million to $0.1 million for the three months ended
September 30, 2010 compared to zero for the three months ended September 30,
2009.  Our interest income is attributable to interest earned on our
investment in HG CMBS Finance LLC which was acquired in November 2009 for $1.7
million and is classified as investment in unconsolidated real estate entity, at
cost on our consolidated balance sheet.  During the three months ended
September 30, 2009, we did not own any investments.





Loss
from Investment in Unconsolidated Affiliated Real Estate Entity





Our loss
from investment in unconsolidated affiliated real estate entity for the three
months ended September 30, 2010 was $0.1 million compared to zero during the
three months ended September 30, 2009.   This account represents
our equity earnings on our investment in Brownmill LLC (see Note 3 of notes to
consolidated financial statement) which we obtained on June 30, 2010. The
majority of the loss represents the additional depreciation expense recorded
associated with the difference in our cost of this investment in excess of its
historical net book value.





Noncontrolling
interests





The loss
allocated to noncontrolling interests relates to the interest in the Operating
Partnership held by our Sponsor.





For the Nine Months Ended
September 30, 2010 vs. September 30, 2009





Consolidated





General
and administrative expenses





General
and administrative costs increased by $0.5 million to $0.6 million for the nine
months ended September 30, 2010 compared to $0.1 million for the nine months
ended September 30, 2009 primarily due to insurance costs and consulting and
accounting fees which were incurred during the 2010 period but not during the
2009 period because we did not commence operations until October
2009.  The 2010 period also includes $0.1 million in acquisition and
legal fees associated with the purchase of a mortgage loan (see Note 5 of notes
to consolidated financial statement).




15


Interest
Income




Interest
income increased by $0.2 million to $0.2 million for the nine months ended
September 30, 2010 compared to zero for the nine months ended September 30,
2009.   Our interest income is attributable to interest earned on
our investment in HG CMBS Finance LLC which was acquired in November 2009 for
$1.7 million and is classified as investment in unconsolidated real estate, at
cost on our consolidated balance sheet.  During the nine months ended
September 30, 2009, we did not own any investments.





Loss
from Investment in Unconsolidated Affiliated Real Estate Entity





Our loss
from investment in unconsolidated affiliated real estate entity for the nine
months ended September 30, 2010 was $0.1 million compared to zero during the
nine months ended September 30, 2009.   This account represents
our equity earnings on our investment in Brownmill LLC (see Note 3 of notes to
consolidated financial statement) which we obtained on June 30, 2010. The
majority of the loss represents the additional depreciation expense recorded
associated with the difference in our cost of this investment in excess of its
historical net book value.





Noncontrolling
interests





The loss
allocated to Noncontrolling interests relates to the interest in the Operating
Partnership held by our Sponsor.





Financial Condition, Liquidity and
Capital Resources




Overview:





For the
nine months ended September 30, 2010, our primary source of funds was from $14.3
million proceeds from our public offering, net of commissions and offering costs
paid during the period.  We are dependent upon the net proceeds to be
received from our public offering to conduct our proposed activities. The
capital required to purchase real estate investments will be obtained from our
offering and from any indebtedness that we may incur in connection with the
acquisition and operations of any real estate investments
thereafter.





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





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





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





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




16


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





In
general the type of financing executed by us to a large extent will be
dictated by the nature of the investment and current market conditions. For
long-term real estate investments, it is our intent to finance
the acquisition using long-term fixed rate debt. However there may certain
types of investments and market circumstances which may result in variable
rate debt being the more appropriate choice of financing.  To the extent
floating rate debt is used to finance the purchase of real estate, management
will evaluate a number of protections against significant increases in interest
rates, including the purchase of interest rate caps instruments.





We may
also obtain lines of credit to be used to acquire properties. These lines of
credit will be at prevailing market terms and will be repaid from offering
proceeds, proceeds from the sale or refinancing of properties, working capital
or permanent financing. Our Sponsor or its affiliates may guarantee the lines of
credit although they will not be obligated to do so. We may draw upon the lines
of credit to acquire properties pending our receipt of proceeds from our initial
public offering. We expect that such properties may be purchased by our
Sponsor’s affiliates on our behalf, in our name, in order to minimize 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 our organizational and offering stage, these
payments include payments to our Dealer Manager for selling commissions and the
dealer manager fee, and payments to our Advisor for the reimbursement of
organizational 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 II
LLC, an affiliate of the Advisor.





The
following table represents the fees incurred associated with the payments to our
Advisor and our Property Manager:




For
      the Three
                Months
      Ended
                September
      30,
                2010
              
              
              For
      the Nine Months
                Ended
      September 30,
                2010Acquisition
      fees
              
              $
              -
              
              
              $
              74,642Asset
      management fees
              
              
              4,014
              
              
              
              12,041Property
      management fees
              
              
              -
              
              
              
              -Acquisition
      expenses reimbursed to Advisor
              
              
              -
              
              
              
              -Development
      fees
              
              
              -
              
              
              
              -Leasing
      commissions
              
              
              -
              
              
              
              -Total
              
              $
              4,014
              
              
              $
              86,683




During
the three and nine months ended September 30, 2009, we did not incur any fees
associated with payments to our Advisor or our Property Manager.





In
addition, total selling commissions and dealer fees incurred during the three
and nine months ended September 30, 2010 was $0.5 million and $1.7 million,
respectively.




17





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:




For
      the Nine Months Ended
                September
      30,2010
              
              
              2009Cash
      flows provided by/(used in) operating activities
              
              $
              (1,162,286
              )
              
              $
              639,886Cash
      flows used in investing activities
              
              
              (7,345,587
              )
              
              
              -Cash
      flows provided by financing activities
              
              
              13,952,855
              
              
              
              -Net
      change in cash and cash equivalents
              
              
              5,444,982
              
              
              
              639,886Cash
      and cash equivalents, beginning of the period
              
              
              8,596,008
              
              
              
              99,703Cash
      and cash equivalents, end of the period
              
              $
              14,040,990
              
              
              $
              739,589




Our
principal source of cash flow was derived from the net offering proceeds
received. In the future, we intend to acquire properties which will provide a
relatively consistent stream of cash flow that provides us with resources to
fund operating expenses, debt service and quarterly distributions.




Our
principal demands for liquidity currently are acquisition and development
activities as well as costs associated with our public offering.  The
principal sources of funding for our operations are currently the issuance of
equity securities.





Operating
activities





During
the nine months ended September 30, 2010, net cash used in operating activities
was $1.2 million compared to $0.6 million for nine months ended September 30,
2009.  The net cash used in operating activities during the 2010
period primarily related to our net loss of $0.5 million plus the increases in
our restricted escrow (attributable to our mortgage loan acquired in June 2010)
of $0.5 million and prepaid expenses and other assets of $0.2 million (due to
the upfront payment of insurance premiums).





Investing
activities





Net cash
used in investing activities during the nine months ended September 30, 2010 was
$7.3 million compared to zero during the nine months ended September 30,
2009.  The net cash used in investing activities during the 2010
period reflects our purchase of a mortgage loan for $7.9 million in June 2010
partially offset by collections of $0.5 million applied to outstanding
principal.  See Note 4 of notes to consolidated financial
statements.





Financing
activities





Net cash
provided by financing activities was $14.0 million during the nine months ended
September 30, 2010 compared to zero during the nine months ended September 30,
2009.  The net cash provided by financing activities during the 2010
period primarily consists of proceeds from the issuance of our common stock of
$18.8 million partially offset by the payment of selling commissions, dealer
manager fees and other offering costs of $4.5 million and distributions to
common stockholders of $0.4 million.




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.





Contractual Obligations




None





18





Funds
from Operations





In
addition to measurements defined by accounting principles generally accepted in
the United States of America (“GAAP”), our management also focuses on funds from
operations (“FFO”) and modified funds from operations (“MFFO”) to measure our
performance.   FFO is generally considered to be an appropriate
supplemental non-GAAP measure of the performance of real estate investment
trusts (“REITs”).  FFO is defined by the National Association of Real
Estate Investment Trusts, Inc (“NAREIT”) as net earnings before depreciation and
amortization of real estate assets, gains or losses on dispositions of real
estate, (including such non-FFO items reported in discontinued
operations).   Notwithstanding the widespread reporting of FFO,
changes in accounting and reporting rules under GAAP that were adopted after
NAREIT’s definition of FFO have prompted a significant increase in the magnitude
of non-operating items included in FFO.  For example, acquisition expenses,
acquisition fees and financing fees, which we intend to fund from the proceeds
of this offering and which we do not view as an expense of operating a property,
are now deducted as expenses in the determination of GAAP net income.  As a
result, we intend to consider a modified FFO, or MFFO, when assessing our
operating performance.  We intend to explain all modifications to FFO and
to reconcile MFFO to FFO and FFO to GAAP net income when presenting MFFO
information.




Our MFFO
is FFO excluding straight-line rental revenue, the net amortization of
above-market and below market leases, other than temporary impairment of
marketable securities, gain/loss on sale of marketable securities, impairment
charges on long-lived assets and acquisition-related costs expensed. 
Historical cost accounting for real estate assets in accordance with GAAP
implicitly assumes that the value of real estate diminishes predictably over
time.  Since real estate values have historically risen or fallen with
market conditions, many industry investors and analysts have considered the
presentation of operating results for real estate companies that use historical
cost accounting alone to be insufficient.




Accordingly,
we believe that FFO is helpful to stockholders and our management as a measure
of operating performance because it excludes depreciation and amortization,
gains and losses from property dispositions, and extraordinary items, and as a
result, when compared year over year, reflects the impact on operations from
trends in occupancy rates, rental rates, operating costs, general and
administrative expenses, and interest costs, which is not immediately apparent
from net income.  We believe that MFFO is helpful to stockholders and our
management as a measure of operating performance because it excludes charges
that management considers more reflective of investing activities or
non-operating valuation changes.  By providing FFO and MFFO, we present
information that reflects how our management analyzes our long-term operating
activities.  We believe fluctuations in MFFO are indicative of changes in
operating activities and provide comparability in evaluating our performance
over time and as compared to other real estate companies that may not be
affected by impairments or acquisition activities.




Below is
a reconciliation of net loss to FFO for the periods indicated.




For
      the Three Months Ended
                September
      30,
              
              
              For
      the Nine Months Ended
                September
      30,2010
              
              
              2009
              
              
              2010
              
              
              2009Net
      loss
              
              $
              (212,372
              )
              
              $
              (29,947
              )
              
              $
              (515,066
              )
              
              $
              (107,519
              )Adjustments:Equity
      in depreciation and amortization for unconsolidated affiliated real estate
      entity
              
              
              118,979
              
              
              
              -
              
              
              
              232,398
              
              
              
              -FFO(93,393
              )
              
              
              (29,947
              )
              
              
              (282,668
              )
              
              
              (107,519
              )Less:
      FFO attributable to noncontrolling interests
              
              
              4
              
              
              
              -
              
              
              
              21
              
              
              
              -FFO
      attributable to Company's common share
              
              $
              (93,389
              )
              
              $
              (29,947
              )
              
              $
              (282,647
              )
              
              $
              (107,519
              )FFO
      per common share, basic and diluted
              
              $
              (0.03
              )
              
              $
              (1.50
              )
              
              $
              (0.12
              )
              
              $
              (5.38
              )Weighted
      average number of common shares outstanding, basic and
    diluted
              
              
              2,898,986
              
              
              
              20,000
              
              
              
              2,276,274
              
              
              
              20,000
  19




Below is
the reconciliation of MFFO for the periods indicated.




For
      the Three Months Ended
                September
      30,
              
              
              For
      the Nine Months Ended
                September
      30,2010
              
              
              2009
              
              
              2010
              
              
              2009FFO
              
              $
              (93,393
              )
              
              $
              (29,947
              )
              
              $
              (282,668
              )
              
              $
              (107,519
              )Adjustments:Noncash
      Adjustments:Straight-line
      rent adjustment (1)
              
              
              (16,790
              )
              
              
              -
              
              
              
              (22,133
              )
              
              
              -Total
      non cash adjustments
              
              
              (16,790
              )
              
              
              -
              
              
              
              (22,133
              )
              
              
              -Other
      adjustments:Acquisition/divestiture
      costs expensed
              
              
              124,127
              
              
              
              -
              
              
              
              212,576
              
              
              
              -MFFO
              
              $
              13,944
              
              
              $
              (29,947
              )
              
              $
              (92,225
              )
              
              $
              (107,519
              )Less:
      MFFO attributable to noncontrolling interests
              
              
              (1
              )
              
              
              
              
              
              
              10
              
              
              
              -MFFO
      attributable to Company's common shares
              
              $
              13,943
              
              
              $
              (29,947
              )
              
              $
              (92,215
              )
              
              $
              (107,519
              )





1)           Straight-line rentadjustment relates tostraight-line rent from
unconsolidatedaffiliated
real estate entity.




Sources of
Distribution





On
March 23, 2010, the Company’s Board of Directors (the “Board”) declared the
quarterly dividend for the three-month period ended March 31, 2010 in the amount
of $0.00178082191 per share per day which equals a daily amount that, if paid
each day for a 365-day period, of 6.5% annualized rate based on a share price of
$10.00 payable to stockholders of record on the close of business each day
during the quarter.  The distribution was paid in full on April 15,
2010 using a combination of cash (approximately $0.1 million) and 13,261
shares  ($0.1 million) issued pursuant to the Company’s Dividend
Reinvestment Program (the “DRIP”), at a discounted price of $9.50 per
share.  We used proceeds from our offering of common stock to fund the
cash portion of our distributions.





On July
9, 2010, the Board declared the quarterly dividend for the three-month period
ended June 30, 2010 in the amount of $0.00178082191 per share per day which
equals a daily amount that, if paid each day for a 365-day period, of 6.5%
annualized rate based on a share price of $10.00 payable to stockholders of
record on the close of business each day during the quarter.  The
distribution was paid in full on July 15, 2010 using a combination of cash
(approximately $0.2 million) and 18,187 shares ($0.2 million) issued pursuant to
the Company’s DRIP, at a discounted price of $9.50 per share.  We used
proceeds from our offering of common stock to fund the cash portion of our
distributions.





On
September 16, 2010, the Board declared the quarterly distribution for the
three-month period ended September 30, 2010 in the amount of $0.00178082191 per
share per day which equals a daily amount that, if paid each day for a 365-day
period, of 6.5% annualized rate based on a share price of $10.00 payable to
stockholders of record on the close of business each day during the
quarter.  The distribution was paid in full on October 29, 2010 using
a combination of cash (approximately $0.2 million) and 24,619 shares
(approximately $0.2 million) of the Company’s common stock issued pursuant to
the Company’s DRIP, at a discounted price of $9.50 per share.   We used
proceeds from our offering of common stock to fund the cash portion of our
distributions.





The
amount of distributions paid to our stockholders in the future will be
determined by our Board 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.





20


The
following table provides a summary of the quarterly distributions declared and
the source of distribution based upon cash flows provided by operations for the
periods indicated.  We did not declare any distributions for the three
and nine months ended September 30, 2009 as we did not commence operations until
October 2009.
  Related
      to the Nine
                  Months
      Ended
                  September
      30, 2010
                
                Quarter
      ended
                  September
      30, 2010
                
                
                Quarter
      ended
                  June
      30, 2010
                
                
                Quarter
      ended
                  March
      31, 2010Distribution
      period:
                
                
                
                
                
                Q3
      2010
                
                
                
                Q2
      2010
                
                
                
                Q1
      2010Date
      distribution declared
                
                
                
                September
      16, 2010
                
                
                July
      9, 2010
                
                
                March
      23, 2010Date
      distribution paid
                
                
                
                October
      29, 2010
                
                
                July
      15, 2010
                
                
                April
      15, 2010Distributions
      Paid
                
                $
                555,119
                
                
                $
                240,192
                
                
                $
                192,562
                
                
                $
                122,365Distributions
      Reinvested
                
                
                532,336
                
                
                
                230,819
                
                
                
                175,152
                
                
                
                126,365Total
      Distributions
                
                $
                1,087,455
                
                
                $
                471,011
                
                
                $
                367,714
                
                
                $
                248,730Source
      of distributionsCash
      flows used from operations
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Proceeds
      from issuance of common stock
                
                
                1,087,455
                
                
                
                471,011
                
                
                
                367,714
                
                
                
                248,730Total
      Sources
                
                $
                1,087,455
                
                
                $
                471,011
                
                
                $
                367,714
                
                
                $
                248,730




New
Accounting Pronouncements





In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 167, “Amendments to FASB
Interpretation No. 46(R)”, which was primarily codified into Topic 810 in the
Accounting Standards Codification (“ASC”).  This standard requires
ongoing assessments to determine whether an entity is a variable entity and
requires qualitative analysis to determine whether an enterprise’s variable
interest(s) give it a controlling financial interest in a variable interest
entity. In addition, it requires enhanced disclosures about an enterprise’s
involvement in a variable interest entity. This standard is effective for the
fiscal year that begins after November 15, 2009. The Company adopted this
standard on January 1, 2010 and the adoption did not have a material impact on
the Company’s consolidated financial statements.





In
January 2010, the FASB issued FASB Accounting Standards Update (“ASU”) No.
2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements”.  ASU No. 2010-06 amends
ASC 820 and clarifies and provides additional disclosure requirements related to
recurring and non-recurring fair value measurements. This ASU becomes effective
for the Company on January 1, 2010. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.





The
Company has determined that all other recently issued accounting pronouncements
will not have a material impact on its consolidated financial position, results
of operations and cash flows, or do not apply to its operations.





21





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. As of September 30, 2010, we did not have any swap or derivative
agreements outstanding.





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





ITEM 4 (T). CONTROLS AND
PROCEDURES.




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




There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended September 30, 2010 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 Company may become subject to
legal proceedings, claims or disputes.  As of the date hereof, we are
not a party to any material pending legal proceedings.





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




Recent Sales of Unregistered
Securities




During
the period covered by this Form 10-Q, we did not sell any unregistered
securities. Through September 30, 2010, we have not repurchased any of our
securities.





Use of Initial Public Offering
Proceeds





On
February 17, 2009, our Registration Statement on Form S-11 (File No.
333-151532), covering a public offering, which we refer to as the “Offering,” of
up to 51,000,000 common shares for $10 per share (exclusive of 6,500,000 shares
available pursuant to the Company’s distribution reinvestment plan, 75,000
shares that are reserved for issuance under the Company’s stock option plan and
255,000 shares reserved for issuance under the Company’s employee and director
incentive restricted share plan) was declared effective under the Securities Act
of 1933.





We issued
20,000 shares to the Advisor on May 20, 2008, for $10 per share.  In
addition, as of September 30, 2009, we had reached its minimum offering by
receiving subscriptions of its common shares, representing gross offering
proceeds of approximately $6.5 million. Through September 30, 2010, cumulative
gross offering proceeds of $30.9 million were released to the
Company.  The Company invested the proceeds from this sale and
proceeds from the Advisor in the Operating Partnership, and as a result, held a
99.99% general partnership interest at September 30, 2010 in the Operating
Partnership’s common units.





22


Lightstone
SLP II LLC will purchase subordinated profits interests in the Operating
Partnership at a cost of $100,000 per unit for each $1,000,000 in subscriptions
up to ten percent of the offering proceeds.  Lightstone SLP II LLC may
elect to purchase the subordinated profits interests with either cash or an
interest in real property of equivalent value.  The proceeds received
from the cash sale of the subordinated profits interests will be used to offset
payments made by us from offering proceeds to pay the dealer manager fees and
selling commissions and other offering costs.    On June 30,
2010, Lightstone SLP II LLC purchased 25 subordinated profits interest valued at
$2.5 million by contributing a 26.25% interest in Brownmill LLC (see Note 3 of
notes to consolidated financial statements regarding Brownmill
LLC).





We will
utilize a portion of offering proceeds towards funding the dealer manager fees,
selling commissions and other offering costs.




Below is
a summary of the expenses we have incurred from inception through September 30,
2010 in connection with the issuance and distribution of the registered
securities.




Type
      of Expense:Underwriting
      discounts and commissions
              
              $
              2,751,940Other
      expenses incurred to be paid non-affiliates
              
              
              3,782,327Total
      offering expenses incurred through September 30, 2010
              
              $
              6,534,267





As of
September 30, 2010, the total costs of raising capital associated with our
offering which we have funded, including fees paid to our Dealer Manager was
approximately 21% of total proceeds compared to 31% as of December 31,
2009.  As a significant amount of offering costs associated with
accounting, legal and marketing costs are incurred prior to the sale of shares,
the percentage of proceeds utilized towards commissions, dealer manager fees and
other offering costs is higher than our estimate of  approximately 10%
of offering proceeds.  As we sell more shares, this percentage will
decline over time.





Cumulatively
through September 30, 2010, we have used the net offering proceeds received of
$24.5 million, after deduction of offering expenses paid since inception of $6.5
million, as follows:




Construction
      of plant, building and facilities
              
              $
              -Purchase
      of real estate interests
              
              
              -Purchase
      of mortgage loan
              
              
              7,587,000Investment
      in real estate securities
              
              
              1,690,000Cash
      and cash equivalents (as of September 30, 2010)
              
              
              14,040,990Subscriptions
      Receivable (as of September 30, 2010)
              
              
              575,693Fund
      cash distributions
              
              
              398,878Other
      uses (primarily timing of payables)
              
              
              250,925Total
      uses
              
              $
              24,543,486





As of
November 5, 2010, we have sold 3,219,870 shares at an aggregate of price of
approximately $32.2 million.  In addition, we have sold approximately
63,526 shares at an aggregate price of approximately $0.6 million under our
Distribution Reinvestment Plan.





ITEM 3. DEFAULTS UPON
SENIOR SECURITIES




None.





ITEM
4. REMOVED AND RESERVED





ITEM
5. OTHER INFORMATION.




None.




23





ITEM
6. EXHIBITS




Exhibit
              Number
            
            Description10.9
            
            Assignment
      and Assumption Agreement between Citigroup Markets Corp and Lightstone
      Value Plus REIT II LP10.10
            
            Contribution
      Agreement between Lightstone Holdings, LLC and Lightstone Value Plus REIT
      II LP10.11
            
            Assignment
      of Membership Interest between Lightstone Holdings, LLC and Lightstone
      Value Plus REIT II LP31.1*
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
      of the Securities Exchange Act, as amended.31.2*
            
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
      of the Securities Exchange Act, as amended.32.1*
            
            Certification
      of Chief Executive Officer 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
      of Chief Financial Officer 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





24




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 II, INC.Date: November
      15, 2010
              By:
              /s/ David LichtensteinDavid
      LichtensteinChairman
      and Chief Executive Officer(Principal
      Executive Officer)




Date:
      November 15, 2010
              By:
              /s/ Donna BrandinDonna
      BrandinChief
      Financial Officer and Treasurer(Duly
      Authorized Officer and Principal Financial and Accounting
      Officer)




25