Lightstone Value Plus REIT I, Inc. - Quarter Report: 2008 September (Form 10-Q)

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PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007	3

	Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2008 and 2007	4

	Consolidated Statement of Stockholders’ Equity and Other Comprehensive Income (Loss) (unaudited) for the Nine Months Ended September 30, 2008	5

	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2008 and 2007	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	41

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Submission of Matters to a Vote of Security Holders	44

Item 5.	Other Information	44

Item 6.	Exhibits	44

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

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

CONSOLIDATED BALANCE SHEETS

	September 30, 2008			December 31, 2007
	(unaudited)
*Assets*
Investment property:
Land	$	62,053,867		$	62,032,138
Building		247,536,946			240,221,044
Construction in progress		21,676,009			7,499,319
		331,266,822			309,752,501
Less accumulated depreciation		(10,445,917	)		(5,455,550	)
Net investment property		320,820,905			304,296,951

Investments in unconsolidated affiliated real estate entities		23,648,164			6,284,675
Investment in affiliate, at cost		10,150,000			-
Cash		69,549,490			29,589,815
Marketable securities		11,443,048			10,752,910
Restricted escrows		10,003,285			9,595,453
Due from Sponsor		2,687,763			-
Tenant and other accounts receivable		1,572,596			1,531,180
Note receivable		49,500,000			-
Acquired in-place lease intangibles (net of accumulated amortization of $1,734,649 and $2,646,629, respectively)		1,328,278			1,982,292
Acquired above market lease intangibles (net of accumulated amortization of $654,043 and $373,175, respectively)		528,139			830,727
Deferred intangible leasing costs (net of accumulated amortization of $764,352 and $605,093, respectively)		792,329			1,153,712
Deferred leasing costs (net of accumulated amortization of $106,700 and $50,606, respectively)		562,271			154,879
Deferred financing costs (net of accumulated amortization of $532,903 and $172,939, respectively)		2,227,443			2,154,560
Prepaid expenses and other assets		3,142,602			1,374,200
Total Assets	$	507,956,313		$	369,701,354

*Liabilities and Stockholders' Equity*
Mortgage payable	$	238,966,203		$	237,610,371
Note payable		7,416,941			5,825,286
Accounts payable and accrued expenses		12,824,161			5,811,535
Due to sponsor		-			521,427
Tenant allowances and deposits payable		975,189			943,854
Distributions payable		4,931,064			2,463,361
Prepaid rental revenues		1,040,078			1,066,724
Acquired below market lease intangibles (net of accumulated amortization of $2,047,648 and $1,874,843, respectively)		1,456,778			2,391,883
		267,610,414			256,634,441

Minority interest in partnership		28,467,316			12,954,715

Commitments and contingencies

Stockholders' equity:
Preferred shares, $1 par value, 10,000,000 shares authorized, 18,620 and 0 shares issued and outstanding, respectively, Series A liquidation preference of $1,000, per share		18,620			-
Common stock, $.01 par value; 60,000,000 shares authorized, 29,403,272 and 13,606,608 shares issued and outstanding, respectively		294,033			136,066
Additional paid-in-capital		279,461,689			120,297,590
Note receivable from stockholders		(17,640,000	)		-
Accumulated other comprehensive income(loss)		24,433			(1,199,278	)
Accumulated distributions in addition to net loss		(50,280,192	)		(19,122,180	)
Total stockholder’s equity		211,878,583			100,112,198
Total Liabilities and Stockholders' Equity	$	507,956,313		$	369,701,354

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

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

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

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months ended September 30, 2008			Three Months ended September 30, 2007			Nine Months ended September 30, 2008			Nine Months ended September 30, 2007

Revenues:
Rental income	$	9,191,180		$	5,086,124		$	26,841,456		$	14,560,096
Tenant recovery income		1,075,673			965,838			3,136,626			2,713,944
		10,266,853			6,051,962			29,978,082			17,274,040
Expenses:
Property operating expenses		4,712,463			2,330,393			12,951,925			6,237,907
Real estate taxes		1,030,937			656,626			3,117,564			1,863,946
General and administrative costs		1,335,185			399,977			8,299,384			2,865,059
Depreciation and amortization		2,136,873			1,466,833			6,539,587			4,461,532
		9,215,458			4,853,829			30,908,460			15,428,444
Operating (loss) income		1,051,395			1,198,133			(930,378	)		1,845,596

Other income (expense)		120,873			(267,066	)		385,512			615,511
Interest income		1,550,433			1,147,106			3,528,156			1,147,106
Interest expense		(3,492,802	)		(2,240,420	)		(10,473,022	)		(6,396,234	)
Loss from investment in unconsolidated affiliated real estate entities		(676,194	)		(1,721,940	)		(2,236,511	)		(5,910,940	)
Loss on sale of marketable securities		(7,454	)		-			(7,454	)		-
Other than temporary impairment - marketable securities		(9,733,015	)		-			(9,733,015	)		-
Minority interest		173			(24	)		322			168
Net loss applicable to common shares	$	(11,186,591	)	$	(1,884,211	)	$	(19,466,390	)	$	(8,698,793	)

Net loss per common share, basic and diluted	$	(0.44	)	$	(0.17	)	$	(0.97	)	$	(1.09	)

Weighted average number of common shares outstanding, basic and diluted		25,464,696			10,942,668			20,058,683			7,954,063

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

PART I. FINANCIAL INFORMATION:

ITEM 1. FINANCIAL STATEMENTS.

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

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

(UNAUDITED)

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

BALANCE, September 30, 2008		18,620	$	18,620		29,403,272	$	294,033	$	279,461,689		$	(17,640,000	)	$	24,433		$	(50,280,192	)	$	211,878,583

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

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine months ended September 30, 2008			Nine months ended September 30, 2007

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(19,466,390) $			(8,698,793	)
Loss allocated to minority interests		(322	)		(168	)
Adjustments to reconcile net loss to net cash provided by operating activities:		-			-
Depreciation or amortization		6,100,190			4,059,848
Loss on sale of marketable securities		7,454			-
Realized loss on impairment of marketable securities		9,733,015			-
Amortization of deferred financing costs		368,625			76,876
Amortization of deferred leasing costs		439,397			401,684
Amortization of above and below-market lease intangibles		(632,518	)		(450,412	)
Net equity in loss from investment in unconsolidated real estate entities		2,236,511			5,910,940
Changes in assets and liabilities:		-			-
Increase in prepaid expenses and other assets		(1,567,703	)		(586,091	)
Increase in tenant and other accounts receivable		(41,416	)		(756,752	)
Increase in tenant allowance and security deposits payable		31,335			361,220
Increase in accounts payable and accrued expenses		6,672,961			2,347,101
Increase in prepaid rents		(26,645	)		521,061
Net cash provided by (used in)operating activities		3,854,494			3,186,514

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of investment property, net		(22,656,237	)		(62,702,844	)
Purchase of marketable securities		(9,290,458	)		(24,847,830	)
Note receivable from stockholders		(49,500,000	)		-
Proceeds from sale of marketable securities		83,562			-
Purchase of investment in affiliate		(10,150,000	)		(13,476,185	)
Funding of restricted escrows		(407,832	)		(2,426,668	)
Refundable deposit for investment in real estate		-			(13,203,195	)
Net cash used in investing activities		(91,920,965	)		(116,656,722	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage financing		3,187,177			53,025,000
Mortgage payments		(230,947	)		(120,790	)
Payment of loan fees and expenses		(441,509	)		(348,167	)
Proceeds from issuance of common stock		152,146,559			71,242,238
Proceeds from issuance of special general partnership units		12,292,129			7,146,129
Payment of offering costs		(15,853,449	)		(6,970,286	)
Note receivable from stockholders		(17,640,000	)		-
Due from escrow agent		-			163,949
Distributions paid		(5,433,814	)		(2,118,457	)
Net cash provided by financing activities		128,026,146			122,019,616

Net change in cash		39,959,675			8,549,408
Cash, beginning of period		29,589,815			19,280,710
Cash, end of period	$	69,549,490		$	27,830,118

Supplemental disclosure of cash flow information:
Cash paid for interest	$	10,667,126		$	6,139,799
Dividends declared	$	11,691,622		$	4,661,959
Unrealized gain on available for sale securities	$	1,223,711		$	1,545,670
Proceeds from shares issued in distribution reinvestment program	$	3,447,577		$	-
Proceeds from shares issued in joint venture investment	$	19,600,000		$	-

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

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

Notes to the Consolidated Financial Statements

(continued)

1. Organization

Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (“Lightstone REIT” and, together with the Operating Partnership (as defined below), the “Company”) was formed on June 8, 2004 and subsequently qualified as a real estate investment trust (“REIT”) during the year ending December 31, 2006. The Company was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States and Puerto Rico.

The Lightstone REIT is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of the Lightstone REIT’s current and future business is and will be conducted through Lightstone Value Plus REIT, L.P., a Delaware limited partnership formed on July 12, 2004 (the “Operating Partnership”). The Lightstone REIT is managed by Lightstone Value Plus REIT, LLC (the “Advisor”), an affiliate of the Lightstone Group (the “Sponsor”), under the terms and conditions of an advisory agreement. The Sponsor and Advisor are owned and controlled by David Lichtenstein, the Chairman of the Company’s board of directors and its Chief Executive Officer.

The Company sold 20,000 shares to the Advisor on July 6, 2004, for $10 per share. The Company invested the proceeds from this sale in the Operating Partnership, and as a result, held a 99.9% limited partnership interest in the Operating Partnership. The Advisor also contributed $2,000 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The limited partner has the right to convert operating partnership units into cash or, at the option of the Company, an equal number of common shares of the Company, as allowed by the limited partnership agreement.

A Post-Effective Amendment to the Lightstone REIT’s Registration Statement was declared effective on October 17, 2005. The Post-Effective Amendment reduced the minimum offering from 1 million shares of common stock to 200,000 shares of common stock. As of December 31, 2005, the Company had reached its minimum offering by receiving subscriptions for approximately 226,000 of its common shares, representing gross offering proceeds of approximately $2.3 million. On February 1, 2006, cumulative gross offering proceeds of approximately $2.7 million were released to the Company from escrow and invested in the Operating Partnership.

As of September 30, 2008, cumulative gross offering proceeds of approximately $290.3 million, which includes $5.6 million of proceeds from shares issued in the distribution reinvestment program, have been released to the Lightstone REIT and used for the purchase of a 99.99% general partnership interest in the Operating Partnership. The Company expects that its ownership percentage in the Operating Partnership will remain significant as it plans to continue to invest all net proceeds from the Offering in the Operating Partnership.

Lightstone SLP, LLC, an affiliate of the Advisor, intends to periodically purchase special general partner interests (“SLP Units”) in the Operating Partnership at a cost of $100,000 per unit for each $1.0 million in offering subscriptions. Proceeds from the sale of the SLP Units will be used to fund organizational and offering costs incurred by the Company. As of September 30, 2008, offering costs were $29.0 million and were offset by $28.5 million of proceeds from the sale of SLP Units of which $3.2 million had yet been funded. The Advisor intends to offset this obligation with a portion of the $9.7 million acquisition fee to be paid to the Advisor upon the Company’s settlement of its acquisition of the 25% membership interest in Prime Outlets Acquisitions Company (see note 5).

The Advisor is responsible for offering and organizational costs exceeding 10% of the gross offering proceeds without recourse to the Company. Since its inception, and through September 30, 2008, the Advisor has not allocated any organizational costs to the Company. Advances for offering costs in excess of the 10% will only be reimbursed to the Advisor as additional offering proceeds are received by the Company. As of September 30, 2008, offering costs incurred were approximately 10%.

Through its Operating Partnership, the Company will seek to acquire and operate commercial, residential, and hospitality properties, principally in the United States. Primarily all such properties may be acquired and operated by the Company alone or jointly with another party. As of September 30, 2008, the Company has completed ten acquisitions: the St. Augustine Outlet Center, a retail outlet shopping mall in St. Augustine, Florida, on March 31, 2006; the Southeast Michigan Apartments, four multi-family communities in Southeast Michigan on June 29, 2006; the Oakview Power Center, a retail shopping mall located in Omaha, Nebraska, on December 21, 2006; 1407 Broadway, a 49% equity interest in a joint venture, formed to purchase a sub-leasehold interest in a ground lease to an office building in New York, New York, on January 4, 2007; the Gulf States Industrial portfolio, a portfolio of 12 industrial and 2 office buildings in Louisiana and Texas, on February 1, 2007; and has developed the Brazos Crossing Power Center after acquiring a land parcel in Lake Jackson, Texas, on June 29, 2007, the Sugarland and Katy Highway Extended Stay Hotels in Houston, Texas on October 17, 2007, the Southeast Apartments, which included, five multifamily apartment communities, one in Tampa, Florida, two in Greensboro, North Carolina and two in Charlotte, North Carolina on November 16, 2007, and the Sarasota Industrial Property, an industrial building in Sarasota, Florida on November 13, 2007. On June 26, 2008, the Company acquired an interest in an entity with an interest in two outlet malls in Orlando, Florida. All of the acquired properties and development activities are managed by affiliates of Lightstone Value Plus REIT Management LLC (the “Property Manager”).

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

Notes to the Consolidated Financial Statements

(continued)

The Company’s Advisor, Property Manager and Dealer Manager are each related parties. Each of these entities will receive compensation and fees for services related to the offering and for the investment and management of the Company’s assets. These entities will receive fees during the offering, acquisition, development, operational and liquidation stages. The compensation levels during the offering, acquisition and operational stages are based on percentages of the offering proceeds sold, the cost of acquired properties and the annual revenue earned from such properties, and other such fees are outlined in each of the respective agreements. (See Note 13, Related Party Transactions).

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and the Operating Partnership and its subsidiaries (over which Lightstone REIT exercises financial and operating control). As of September 30, 2008, the Company had a 99.99% general partnership interest in the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation.

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

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

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

Cash and Cash Equivalents

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

Marketable Securities

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

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

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

Notes to the Consolidated Financial Statements

(continued)

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

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

Revenue Recognition

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

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

Accounts Receivable

The Company makes estimates of the uncollectability of its accounts receivable related to base rents, expense reimbursements and other revenues. The Company analyzes accounts receivable and historical bad debt levels, customer credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. The Company’s reported net income is directly affected by management’s estimate of the collectability of accounts receivable. The total allowance for doubtful accounts was approximately $0.2 million and $0.2 million at September 30, 2008 and December 31, 2007, respectively.

Investment in Real Estate

Accounting for Acquisitions

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

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

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

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

Notes to the Consolidated Financial Statements

(continued)

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

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

Carrying Value of Assets

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

Impairment Evaluation

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

The Company evaluates the long-lived assets, in accordance with SFAS No. 144 on a quarterly basis and will record an impairment charge when there is an indicator of impairment and the undiscounted projected cash flows are less than the carrying amount for a particular property. Management concluded no impairment adjustment was required through September 30, 2008. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on the Company’s plans for the respective assets and the Company’s views of market and economic conditions. The estimates consider matters such as current and historical rental rates, occupancies for the respective Properties and comparable properties, and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in the Company’s plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.

Depreciation and Amortization

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

Deferred Costs

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

Income or Losses from Investments in Unconsolidated Real Estate Entities

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

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

Notes to the Consolidated Financial Statements

(continued)

Income Taxes

The Company made an election in 2006 to be taxed as a real estate investment trust (a “REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), beginning with its first taxable year, which ended December 31, 2005. Accordingly, no provision for income tax has been recorded.

We elected and qualified to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code in conjunction with the filing of our 2006 federal tax return. To maintain its status as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its ordinary taxable income to stockholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income that it distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company believes that it will be organized and operate in such a manner as to maintain treatment as a REIT and intends to operate in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes. Through September 30, 2008, the Company has complied with the requirements for maintaining its REIT status.

The Company has net operating loss carry forwards of $0.7 million for Federal income tax purposes as of September 30, 2008. The availability of such loss carry-forwards will begin to expire in 2026. As the Company does not consider it likely that it will realize any future benefit from its loss carry-forward, any deferred asset resulting from the final determination of its tax losses will be fully offset by a valuation allowance of the same amount.

Effective January 1, 2007, the Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. This interpretation only allows a favorable tax position to be included in the calculation of tax liabilities and expenses if a company concludes that it is more likely than not that its adopted tax position will prevail if challenged by tax authorities. The adoption of FIN 48 did not have a material impact on the Company’s financial position, results of operation, or cash flows. As of September 30, 2008, the Company had no material uncertain income tax positions. The tax years 2005 through 2007 remain open to examination by the major taxing jurisdictions to which the Company is subject.

Organization and Offering Costs

The Company estimates offering costs of approximately $300,000 if the minimum offering of 200,000 shares is sold, and approximately $30,000,000 if the maximum offering of 30,000,000 shares is sold (which occurred in October 2008). Subject to limitations in terms of the maximum percentage of costs to offering proceeds that may be incurred by the Company, third-party offering expenses such as registration fees, due diligence fees, marketing costs, and professional fees, along with selling commissions and dealer manager fees paid to the Dealer Manager, are accounted for as a reduction against additional paid-in capital (“APIC”) as offering proceeds are released to the Company.

Through September 30, 2008, the Advisor has advanced approximately $28.5 million to the Company for offering costs, including commission and dealer manager fees. Based on gross proceeds of approximately $290.3 million from its public offering as of September 30, 2008, the Company’s responsibility for the reimbursement of advances for commissions and dealer manager fees was limited to 10% of gross offering proceeds, which generally approximate $22.7 million (or 8% of the gross offering proceeds), and its obligation for advances for organization and third-party offering costs was limited to approximately $6.3 million (or 2% of the gross offering proceeds).

Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of the short maturity of these instruments. The fair value of the mortgage-debt and note payable as of September 30, 2008 approximated the book value of approximately $246.4 million. The fair value of the mortgage debt and notes payable was determined by discounting the future contractual interest and principal payments by a market rate.

Stock-Based Compensation

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

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

Notes to the Consolidated Financial Statements

(continued)

Net Loss per Share

Net loss per share is computed in accordance with SFAS No. 128, Earnings per Share by dividing the net loss by the weighted average number of shares of common stock outstanding. The Company has 18,000 options issued and outstanding, and does not have any warrants outstanding. As such, the numerator and the denominator used in computing both basic and diluted net loss per share allocable to common stockholders for each year presented are equal due to the net operating loss. The 18,000 options are not included in the dilutive calculation as they are anti dilutive as a result of the net operating loss applicable to stockholders.

New Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). This standard permits entities to choose to measure many financial instruments and certain other items at fair value and is effective for the first fiscal year beginning after November 15, 2007. The Company adopted SFAS No. 159 as required effective January 1, 2008. The adoption of SFAS No. 159 did not have a material effect on the consolidated results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement clarifies that market participant assumptions include assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or risk inherent in the inputs to the valuation technique. This Statement clarifies that market participant assumptions also include assumptions about the effect of a restriction on the sale or use of an asset. This Statement also clarifies that a fair value measurement for a liability reflects its nonperformance risk. The statement is effective in the fiscal first quarter of 2008 except for non-financial assets and liabilities recognized or disclosed at fair value on a recurring basis, for which the effective date is fiscal years beginning after November 15, 2008. The Company adopted SFAS No. 157 as required effective January 1, 2008. The adoption of SFAS No. 157 did not have a material effect on the consolidated results of operations or financial position.

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

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

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

3. Investments in Unconsolidated Affiliated Real Estate Entities

Mill Run Interest

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

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

Notes to the Consolidated Financial Statements

(continued)

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

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

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

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

	For the period June 26, 2008 through June 30, 2008			For the period July 1, 2008 through September 30, 2008
	(unaudited)			(unaudited)
Revenue	$	404,347			9,976,908

Property operating expenses		177,990			3,204,896
Depreciation and amortization		126,996			2,939,893
		304,986			6,144,789

Operating income		99,361			3,832,119

Other income		2,932			92,456
Interest income		658			20,268
Interest expense		(134,031	)		(3,375,970	)

Net income (loss)		(31,080	)		568,873

Company's share of net income (loss) (22.54%)	$	(7,005	)	$	128,224

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

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

Notes to the Consolidated Financial Statements

(continued)

	September 30, 2008
	(unaudited)
Real estate, at cost (net):		267,046,899
Intangible assets		1,204,398
Cash and restricted cash		4,948,160
Other assets		26,782,586
Total Assets		299,982,043

Mortgage note payable		277,888,723
Other liabilities		26,033,011
Member capital		(3,939,691	)
Total liabilities and members' capital		299,982,043

1407 Broadway

On January 4, 2007, the Company, through LVP 1407 Broadway LLC, a wholly owned subsidiary of the Operating Partnership, entered into a joint venture with an affiliate of the Sponsor (the “Joint Venture”). On the same date, an indirect, wholly owned subsidiary acquired a sub-leasehold interest in a ground lease to an office building located at 1407 Broadway, New York, New York (the “Sublease Interest”).

The Company accounted for the investment in this unconsolidated joint venture under the equity method of accounting as the Company exercises significant influence, but does not control these entities. Initial equity from the Sponsor, our co-venturer totaled $13.5 million (representing a 51% ownership interest). Our initial capital investment, funded with proceeds from our common stock offering, was $13.0 million (representing a 49% ownership interest). The acquisition was funded through a combination of $26.5 million of capital and a $106.0 million advance on a $127.3 million variable rate mortgage loan funded by Lehman Brothers Holding, Inc. (“Lehman”). Additionally, Lehman will receive a 35% net profit interest in the project, which is contingent upon a capital transaction, as defined as any transaction involving the sale, assignment, transfer, liquidation, condemnation or settlement in lieu thereof, disposition, financing, refinancing or any other conversion to cash of all or any portion of the property or equity or membership interests in Borrower, directly, other than the leasing of space for occupancy and/or any other transaction with respect to the Property or the direct or indirect ownership interests in Borrower outside the ordinary course of business. All other income and cash distributions will be allocated in accordance with each investor’s ownership percentage of the venture. This $13.0 million investment was recorded initially at cost and will be subsequently adjusted for cash contributions and distributions, and the Company’s share of earnings and losses. The Company and the co-Venturer contributed an additional $0.6 million in 2007. Earnings for each investment are recognized in accordance with this investment agreement and where applicable, based upon an allocation of the investment’s net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period. For the nine months ended September 30, 2008 and 2007, the Company’s results included a $2.4 million and $5.9 million loss from investment in this unconsolidated affiliated real estate entity, respectively resulting in a net investment balance of approximately $3.9 million as of September 30, 2008. The Joint Venture plans to continue an ongoing renovation project at the property that consists of lobby, elevator and window redevelopment projects. Additional loan proceeds of up to $13.6 million are available to fund these improvements.

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

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

	For the quarter ended September 30, 2008			For the quarter ended September 30, 2007
	(unaudited)			(unaudited)
Total Revenue	$	10,081,003		$	9,668,828

Total property operating expenses		(7,515,980	)		(6,944,157	)
Depreciation & Amortization		(2,551,647	)		(3,978,760	)
Other Income		40,893			15,425
Interest Income		24,317			35,253
Interest Expense		(1,720,257	)		(2,310,755	)

Net operating loss	$	(1,641,671	)	$	(3,514,166	)

Company's share of net operating loss (49%)	$	(804,419	)	$	(1,721,940	)

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

Notes to the Consolidated Financial Statements

(continued)

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

	For the Nine Months Ended September 30, 2008			For the period January 4, 2007 through September 30, 2007
	(unaudited)			(unaudited)
Total Revenue	$	29,356,934		$	27,563,413

Total property operating expenses		(20,389,476	)		(20,064,841	)
Depreciation & Amortization		(9,045,812	)		(12,950,254	)
Other Income		805,023			28,803
Interest Income		100,769			73,326
Interest Expense		(5,639,132	)		(6,713,591	)

Net operating income / (loss)	$	(4,811,694	)	$	(12,063,144	)

Company's share of net operating loss (49%)	$	(2,357,730	)	$	(5,910,940	)

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

	September 30, 2008		December 31, 2007
	(unaudited)

Real estate, at cost (net):	$	111,029,809	$	111,361,237
Intangible assets		5,040,036		9,009,676
Cash and restricted cash		14,214,475		11,458,097
Other assets		6,937,462		9,475,857
Total Assets	$	137,221,782	$	141,304,867

Mortgage note payable	$	113,709,491	$	110,847,201
Other liabilities		15,506,682		17,640,362
Member capital		8,005,609		12,817,304
Total liabilities and members' capital	$	137,221,782	$	141,304,867

4. Investment in Affiliate

Park Avenue Funding

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

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

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

Notes to the Consolidated Financial Statements

(continued)

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

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

5. Note Receivable

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

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

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

6. Future Minimum Rentals

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

												Total Fixed Future
2008		2009		2010		2011		2012		Thereafter		Minimum Rentals
$	2,909,686	$	10,251,750	$	8,575,403	$	6,699,618	$	5,264,189	$	23,748,218	$	57,448,864

7. Pro Forma Combined Condensed Statements of Operations

The following unaudited pro forma combined condensed statements of operations set forth the consolidated results of operations for the nine months ended September 30, 2008 and September 30, 2007, respectively, as if the acquisitions and equity investments listed in Note 1 had occurred at January 1, 2007. There was only one acquisition during the nine months ended September 30, 2008, that took place on June 26, 2008. The unaudited pro forma information does not purport to be indicative of the results that actually would have occurred if the acquisitions had been in effect for the nine months ended September 30, 2008 and September 30, 2007, respectively, or for any future period.

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

Notes to the Consolidated Financial Statements

(continued)

	Nine Months Ended
	September 30,
	2008			2007

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

8. Mortgages Payable

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

Property	Loan Amount		Interest Rate			Maturity Date		Amount Due at Maturity

St. Augustine	$	26,820,623		6.09	%		April 2016	$	23,747,523
Oakview Plaza		27,500,000		5.49	%		January 2017		25,583,137
Gulf Coast Industrial Portfolio		53,025,000		5.83	%		February 2017		49,556,985
Houston Extended Stay Hotels (Two Individual Loans)		11,626,780		LIBOR + 1.75	%		April 2009		11,626,780
Camden Multi Family Properties - (Five Individual Loans)		79,268,800		5.44	%		December 2014		74,955,771
Southeastern Michigan Multi Family Properties		40,725,000		5.96	%		July 2016		38,138,605
Total of eleven outstanding mortgage loans at September 30, 2008	$	238,966,203						$	223,608,801

LIBOR at September 30, 2008 was 3.9263%. Monthly installments of interest only were required through the first 12 months for the St. Augustine loan, and monthly installments of principal and interest are required throughout the remainder of its stated term. Monthly installments of interest only are required through the first 60 months for the Southeastern Michigan multi-family properties, and through the first 48 months for the Camden Multi-Family properties’ loans, and monthly installments of principal and interest are required throughout the remainder of its stated term. The remaining loans are interest only until their maturity, at which time the amounts listed in the table above are due, assuming no prior principal prepayment. Each of the loans is secured by acquired real estate and is non-recourse to the Company.

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

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

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

Pursuant to the Company’s loan agreements, escrows in the amount of $10.0 million were held in restricted escrow accounts at September 30, 2008. These escrows will be released in accordance with the loan agreements as payments of real estate taxes, insurance and capital improvement transactions, as required. Our mortgage debt also contains clauses providing for prepayment penalties.

In connection with the acquisition of the Sugarland and Katy Highway Extended Stay Hotels, the Houston Partnership along with ESD #5051 - Houston - Sugar Land, LLC and ESD #5050 - Houston - Katy Freeway, LLC, its wholly owned subsidiaries (the “Houston Borrowers”) secured a mortgage loan from Bank of America, N.A. in the principal amount of $12.85 million, which included up to an additional $2.8 million of renovation proceeds which will be borrowed as the renovation proceeds. At September 30, 2008 available renovation proceeds totaled $1.2 million

The mortgage loan has a term of one year with the option of a 6-month term extension, bears interest on a daily basis expressed as a floating rate equal to the lesser of (i) the maximum non-usurious rate of interest allowed by applicable law or (ii) the British Bankers Association Libor Daily Floating Rate plus one hundred seventy-five basis points (1.75%) per annum rate and requires monthly installments of interest only through the first 12 months. The mortgage loan matured on October 16, 2008 and the Company exercised its 6-month extension option described above. The entire principal balance, together with all accrued and unpaid interest and all other amounts payable there under will be due on April 16, 2009. The mortgage loan is secured by the hotels and will be non-recourse to the Company.

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

Notes to the Consolidated Financial Statements

(continued)

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

The Company is required to maintain minimum debt service coverage ratios as defined in the loan documents for the St. Augustine, Houston extended stay hotels, Gulf Coast Industrial Portfolio, and Southeastern Michigan multifamily properties. The Company was in compliance with its financial covenants at September 30, 2008.

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

9. Note Payable

On December 5, 2007, the Company entered into a construction loan to fund the development of the Brazos Crossing Power Center, in Lake Jackson, Texas. The loan allows the Company to draw up to $8.2 million, and then will require monthly installments of interest only through the first 12 months and bears interest at 150 basis points (1.5%) in excess of LIBOR. For the second twelve months, principal payments shall be made in monthly installments in amounts equal to one-twelfth of the principal component of an annual amortization of the principal of the loan on the basis of an assumed interest rate of 6.82% and a thirty year term. The loan is secured by acquired real estate and is guaranteed by the Company. The balance at September 30, 2008 and December 31, 2007 was $7.4 million and $5.8 million, respectively. The construction phase of the loan matures on December 4, 2008, while the term phase of the loan matures on December 5, 2009. We believe we are in compliance with the terms required to enter the term phase of the loan.

10. Intangible Assets

At September 30, 2008, the Company had intangible assets relating to above-market leases from property acquisitions, intangible assets related to leases in place at the time of acquisition, intangible assets related to leasing costs, and intangible liabilities relating to below-market leases from property acquisitions.

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

	At September 30, 2008							At December 31, 2007
	Cost		Amortization			Net		Cost		Amortization			Net

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

The following table presents the amortization of the acquired in-place lease intangibles, acquired above market lease costs and the below market lease costs for properties owned at September 30, 2008:

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

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

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

Notes to the Consolidated Financial Statements

(continued)

11. Distributions Payable

On September 15, 2008, the Company declared a dividend for the three-month period ending September 30, 2008. The dividend was calculated based on shareholders of record each day during this three-month period at a rate of $0.0019178 per day, and equaled a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. The September 30, 2008 dividend was paid in full in October 2008 using a combination of cash ($2.4 million) and shares ($2.1 million) which represents 218,152 shares of the Company’s common stock issued pursuant to the Company’s Distribution Reinvestment Program, at a discounted price of $9.50 per share. The amount of dividends distributed to our stockholders in the future will be determined by our Board of Directors and is dependent on a number of factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code.

In addition, Lightstone SLP, LLC, an affiliate of our Sponsor, has and continues to purchase special general partner interests in the Operating Partnership. These special general partner interests, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, will entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership. The distribution for the third quarter 2008 in the amount of $0.4 million was not been paid in October 2008. Such distributions, paid current at a 7% annualized rate of return to Lightstone SLP, LLC through September 30, 2008 and will always be subordinated until stockholders receive a stated preferred return.

12. Stockholders’ Equity

Preferred Shares

Shares of preferred stock may be issued in the future in one or more series as authorized by the Lightstone REIT’s board of directors. Prior to the issuance of shares of any series, the board of directors is required by the Lightstone REIT’s charter to fix the number of shares to be included in each series and the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each series. Because the Lightstone REIT’s board of directors has the power to establish the preferences, powers and rights of each series of preferred stock, it may provide the holders of any series of preferred stock with preferences, powers and rights, voting or otherwise, senior to the rights of holders of our common stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of the Lightstone REIT, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of the Lightstone REIT’s common stock. As of September 30, 2008 and December 31, 2007, the Lightstone REIT had 18,620 and zero outstanding preferred shares, respectively.

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

Common Shares

All of the common stock being offered by the Lightstone REIT is duly authorized and will be fully paid and nonassessable. Subject to the preferential rights of any other class or series of stock and to the provisions of its charter regarding the restriction on the ownership and transfer of shares of our stock, holders of the Lightstone REIT’s common stock will be entitled to receive distributions if authorized by the board of directors and to share ratably in the Lightstone REIT’s assets available for distribution to the stockholders in the event of a liquidation, dissolution or winding-up.

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

Notes to the Consolidated Financial Statements

(continued)

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

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

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

Dividends

The Board of Directors of the Lightstone REIT declared a dividend for each quarter in 2006, 2007, and 2008. The dividends have been calculated based on stockholders of record each day during this three-month period at a rate of $0.0019178 per day, which, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. The September 30, 2008 dividend was paid in full in October 2008 using a combination of cash ($2.4 million), and ($2.1 million) which represent 218,152 shares of the Company’s common stock issued pursuant to the Company’s Distribution Reinvestment Program, shares of the Company’s stock at a discounted price of $9.50 per share. In addition, the Company declared a dividend on the special general partner interests held by our sponsor in the amount of $0.4 million, which was paid in October 2008.

Stock-Based Compensation

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

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

Our stock option plan provides for the automatic grant of a nonqualified stock option to each of our independent directors, without any further action by our board of directors or the stockholders, to purchase 3,000 shares of our common stock on the date of each annual stockholder’s meeting. In July, 2007 options to purchase 3,000 shares were granted to each of our three independent directors at the annual stockholders meeting. At the annual stockholders meeting in August 2008 additional options for the purchase of 3,000 shares were granted to each of our three independent directors. As of September 30, 2008, options to purchase 18,000 shares of stock were outstanding, none of which are fully vested, at an exercise price of $10.

The exercise price for all stock options granted under our stock option plan is fixed at $10 per share until the termination of our initial public offering, and thereafter the exercise price for stock options granted to our independent directors will be equal to the fair market value of a share on the last business day preceding the annual meeting of stockholders. The term of each such option is 10 years. Options granted to non-employee directors vest and become exercisable on the second anniversary of the date of grant, provided that the independent director is a director on the board of directors on that date. Notwithstanding any other provisions of our stock option plan to the contrary, no stock option issued pursuant thereto may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code.

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

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

Notes to the Consolidated Financial Statements

(continued)

13. Related Party Transactions

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

Fees		Amount
Selling Commission		The Dealer Manager will be paid up to 7% of the gross offering proceeds before reallowance of commissions earned by participating broker-dealers. Selling commissions are expected to be approximately $21,000,000 if the maximum offering of 30 million shares is sold.

Dealer Management Fee		The Dealer Manager will be paid up to 1% of gross offering proceeds before reallowance to participating broker-dealers. The estimated dealer management fee is expected to be approximately $3,000,000 if the maximum offering of 30 million shares is sold.

Soliciting Dealer Warrants		The Dealer Manager may buy up to 600,000 warrants at a purchase price of $.0008 per warrant. Each warrant will be exercisable for one share of the Lightstone REIT’s common stock at an exercise price of $12.00 per share.

Reimbursement of Offering Expenses		Reimbursement of all offering costs, including the commissions and dealer management fees indicated above, are estimated at approximately $30 million if the maximum offering of 30 million shares is sold. The Lightstone REIT will sell a special general partnership interest in the Operating Partnership to Lightstone SLP, LLC (an affiliate of the Sponsor) and apply all the sales proceeds to offset such costs.

Acquisition Fee		The Advisor will be paid an acquisition fee equal to 2.75% of the gross contract purchase price (including any mortgage assumed) of each property purchased. The Advisor will also be reimbursed for expenses that it incurs in connection with the purchase of a property. The Lightstone REIT anticipates that acquisition expenses will be between 1% and 1.5% of a property's purchase price, and acquisition fees and expenses are capped at 5% of the gross contract purchase price of the property. The actual amounts of these fees and reimbursements depend upon results of operations and, therefore, cannot be determined at the present time. However, $33,000,000 may be paid as an acquisition fee and for the reimbursement of acquisition expenses if the maximum offering is sold, assuming aggregate long-term permanent leverage of approximately 75%.

Property Management – Residential / Retail/ Hospitality		The Property Manager will be paid a monthly management fee of up to 5% of the gross revenues from residential, hospitality and retail properties. Lightstone REIT may pay the Property Manager separate fees for i) development of, ii) one-time initial rent-up, iii) or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area.

Property Management – Office / Industrial		The Property Manager will be paid monthly property management and leasing fees of up to 4.5% of gross revenues from office and industrial properties. In addition, the Lightstone REIT may pay the Property Manager a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area.

Asset Management Fee		The Advisor or its affiliates will be paid an asset management fee of 0.55% of the Lightstone REIT’s average invested assets, as defined, payable quarterly in an amount equal to 0.1375 of 1% of average invested assets as of the last day of the immediately preceding quarter.

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

Notes to the Consolidated Financial Statements

(continued)

Reimbursement of Other expenses		For any year in which the Lightstone REIT qualifies as a REIT, the Advisor must reimburse the Lightstone REIT for the amounts, if any, by which the total operating expenses, the sum of the advisor asset management fee plus other operating expenses paid during the previous fiscal year exceed the greater of 2% of average invested assets, as defined, for that fiscal year, or, 25% of net income for that fiscal year. Items such as property operating expenses, depreciation and amortization expenses, interest payments, taxes, non-cash expenditures, the special liquidation distribution, the special termination distribution, organization and offering expenses, and acquisition fees and expenses are excluded from the definition of total operating expenses, which otherwise includes the aggregate expense of any kind paid or incurred by the Lightstone REIT.

		The Advisor or its affiliates will be reimbursed for expenses that may include costs of goods and services, administrative services and non-supervisory services performed directly for the Lightstone REIT by independent parties.

Lightstone SLP, LLC, an affiliate of our Sponsor, has and continues to purchase special general partner interests in the Operating Partnership. These special general partner interests, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, will entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership. Distributions of $0.4 million were declared and $0.3 million were paid during the three months ended September 30, 2008. Distributions for the first quarter of 2007 were not declared until the third quarter of 2007. The distribution for the second quarter 2008 in the amount of $0.4 million was paid in July 2008. Such distributions, paid current at a 7% annualized rate of return to Lightstone SLP, LLC through September 30, 2008 and will always be subordinated until stockholders receive a stated preferred return, as described below:

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

Operating Stage Distributions		Amount of Distribution
7% stockholder Return Threshold		Once a cumulative non-compounded return of 7% return on their net investment is realized by stockholders, Lightstone SLP, LLC is eligible to receive available distributions from the Operating Partnership until it has received an amount equal to a cumulative non-compounded return of 7% per year on the purchase price of the special general partner interests. “Net investment” refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of the Lightstone REIT’s assets.

Returns in Excess of 12%		After the 12% return threshold is realized by stockholders and Lightstone SLP, LLC, 60% of any remaining distributions from the Operating Partnership will be distributable to stockholders, and 40% of such amount will be payable to Lightstone SLP, LLC.

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

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

Returns in Excess of 12%		After stockholders and Lightstone LP, LLC have received liquidation distributions, and a cumulative non-compounded return of 12% per year on their initial net investment, 60% of any remaining distributions from the Operating Partnership will be distributable to stockholders, and 40% of such amount will be payable to Lightstone SLP, LLC.

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

Notes to the Consolidated Financial Statements

(continued)

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

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

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

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

14. Segment Information

The Company currently operates in five business segments as of September 30, 2008: (i) retail real estate, (ii) residential real estate, (iii) industrial real estate (iv) office real estate and (v) hospitality. The Company’s advisor and its affiliates provide leasing, property and facilities management, acquisition, development, construction and tenant-related services for its portfolio. The Company’s revenues for the three and nine months ended September 30, 2008 and 2007 were exclusively derived from activities in the United States. No revenues from foreign countries were received or reported. The Company had no long-lived assets in foreign locations as of September 30, 2008 and 2007. The accounting policies of the segments are the same as those described in Note 2: Summary of Significant Accounting Policies, excluding depreciation and amortization. Unallocated assets, liabilities, revenues and expense relate to corporate related accounts.

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

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

	Retail			Multi Family			Industrial			Hospitality			Office			Corporate			Three Months Ended September 30, 2008

Revenues:
Rental income	$	1,568,878		$	4,947,287		$	1,613,355		$	1,061,660		$	-		$	-		$	9,191,180
Tenant recovery income		501,490			233,643			335,020			5,520			-			-			1,075,673
		2,070,368			5,180,930			1,948,375			1,067,180			-			-			10,266,853
Expenses:
Property operating expenses		699,427			2,510,043			716,383			786,610			-			-			4,712,463
Real estate taxes		225,310			521,371			241,072			43,184			-			-			1,030,937
General and adminsitrative costs		1,244			596,693			15,931			16,199			-			705,118			1,335,185
Depreciation and amortization		583,477			746,018			690,773			116,605			-			-			2,136,873
Operating expenses		1,509,458			4,374,125			1,664,159			962,598			-			705,118			9,215,458
Net property operations		560,910			806,805			284,216			104,582			-			(705,118	)		1,051,395

Other income/(expense)		6,054			113,063			1,939			(183	)		-			-			120,873
Interest income		3,825			259			152			2,420			-			1,543,777			1,550,433
Interest expense		(769,756	)		(1,759,310	)		(798,609	)		(165,127	)		-			-			(3,492,802	)
Loss from investments in unconsolidated real estate entities		-			-			-			-			(676,194	)		-			(676,194	)
Loss on sale of equity securities		-			-			-			-			-			(7,454	)		(7,454	)
Other than temporary impairment-marketable securities		-			-			-			-			-			(9,733,015	)		(9,733,015	)
Minority interest		-			-			-			-			-			173			173
Net loss applicable to common shares	$	(198,967	)	$	(839,183	)	$	(512,302	)	$	(58,308	)	$	(676,194	)	$	(8,901,637	)	$	(11,186,591	)

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

Notes to the Consolidated Financial Statements

(continued)

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

	Retail			Multi Family			Industrial			Hospitality		Office			Corporate			Three Months Ended September 30, 2007

Revenues:
Rental income	$	1,506,763		$	1,954,003		$	1,625,358		$	-	$	-		$	-		$	5,086,124
Tenant recovery income		531,587			18,778			415,473			-		-			-			965,838
		2,038,350			1,972,781			2,040,831			-		-			-			6,051,962
Expenses:
Property operating expenses		676,681			957,250			696,462			-		-			-			2,330,393
Real estate taxes		241,219			231,469			183,938			-		-			-			656,626
General and adminsitrative costs		60			66,906			5,903			-		-			327,108			399,977
Depreciation and amortization		545,372			222,542			698,919			-		-			-			1,466,833
Operating expenses		1,463,332			1,478,167			1,585,222			-		-			327,108			4,853,829
Net property operations		575,018			494,614			455,609			-		-			(327,108	)		1,198,133

Other income/(expense)		41,538			207,609			2,253			-		-			(518,466	)		(267,066	)
Interest income		-			-			-			-		-			1,147,106			1,147,106
Loss on sale of equity securities		-			-			-			-		-			-			-
Other than temporary impairment-marketable securities		-			-			-			-		-			-			-
Interest expense		(815,807	)		(626,004	)		(798,609	)		-		-			-			(2,240,420	)
Loss from investments in unconsolidated real estate entities		-			-			-			-		(1,721,940	)		-			(1,721,940	)
Minority interest		-			-			-			-		-			(24	)		(24	)
Net loss applicable to common shares	$	(199,251	)	$	76,219		$	(340,747	)	$	-	$	(1,721,940	)	$	301,508		$	(1,884,211	)

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

	Retail			Multi Family			Industrial			Hospitality			Office			Corporate			Nine Months Ended September 30, 2008
Revenues:
Rental income	$	4,642,203		$	14,587,157		$	4,891,210		$	2,720,886		$	-		$	-		$	26,841,456
Tenant recovery income		1,436,877			675,275			1,009,223			15,251			-			-			3,136,626
		6,079,080			15,262,432			5,900,433			2,736,137			-			-			29,978,082
Expenses:
Property operating expenses		1,983,111			7,519,823			1,785,204			1,663,787			-			-			12,951,925
Real estate taxes		676,327			1,566,345			736,053			138,839			-			-			3,117,564
General and adminsitrative costs		43,215			858,278			74,725			24,234			-			7,298,932			8,299,384
Depreciation and amortization		1,780,757			2,225,018			2,202,144			331,668			-			-			6,539,587
Operating expenses		4,483,410			12,169,464			4,798,126			2,158,528			-			7,298,932			30,908,460
Net property operations		1,595,670			3,092,968			1,102,307			577,609			-			(7,298,932	)		(930,378	)

Other income/(expense)		18,010			350,054			24,610			(7,162	)		-			-			385,512
Interest income		22,632			633			3,187			2,420			-			3,499,284			3,528,156
Interest expense		(2,368,566	)		(5,240,489	)		(2,378,653	)		(485,314	)		-			-			(10,473,022	)
Loss from investments in unconsolidated real estate entities		-			-			-			-			(2,236,511	)		-			(2,236,511	)
Loss on sale of equity securities		-			-			-			-			-			(7,454	)		(7,454	)
Other than temporary impairment-marketable securities		-			-			-			-			-			(9,733,015	)		(9,733,015	)
Minority interest		-			-			-			-			-			322			322
Net loss applicable to common shares	$	(732,254	)	$	(1,796,834	)	$	(1,248,549	)	$	87,553		$	(2,236,511	)	$	(13,539,795	)	$	(19,466,390	)

Balance sheet financial data at September 30, 2008:
Real estate assets, net	$	88,014,231		$	139,120,997		$	75,862,699		$	17,822,978		$	-		$	-		$	320,820,905
Restricted escrows		6,589,752			2,191,531			1,222,002			-			-			-			10,003,285
Investments in unconsolidated real estate entities		-			-			-			-			23,648,164			-			23,648,164
Investment in affiliate, at cost		-			-			-			-			10,150,000			-			10,150,000
Deposit for real estate purchase		-			-			-			-			-			-			-
Due from Affiliate		-			-			-			-			-			-			-
Tenant and other accounts receivable		701,131			236,294			514,294			120,877			-			-			1,572,596
Note Receivable		-			-			-			-			-			49,500,000			49,500,000
Acquired in-place lease intangibles, net		830,616			-			497,662			-			-			-			1,328,278
Acquired above market lease intangibles, net		323,695			21,105			183,339			-			-			-			528,139
Deferred leasing costs, net		867,946			-			486,654			-			-			-			1,354,600
Deferred financing costs, net		551,189			949,141			286,512			27,066			-			413,535			2,227,443
Other assets		340,514			887,004			168,845			454,366			-			1,291,873			3,142,602
Non-segmented assets		-			-			-			-			-			83,680,301			83,680,301
Total Assets	$	98,219,074		$	143,406,072		$	79,222,007		$	18,425,287		$	33,798,164		$	134,885,709		$	507,956,313

Mortgage Payable	$	54,320,623		$	119,993,800		$	53,025,000		$	11,626,779		$	-		$	-		$	238,966,203
Note Payable		7,416,941			-			-			-			-			-			7,416,941

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

Notes to the Consolidated Financial Statements

(continued)

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

	Retail			Multi Family			Industrial			Hospitality		Office			Corporate			Nine Months Ended September 30, 2007
Revenues:
Rental income	$	4,350,112		$	5,858,191		$	4,351,793		$	-	$	-		$	-		$	14,560,096
Tenant recovery income		1,584,129			63,057			1,066,758			-		-			-			2,713,944
		5,934,241			5,921,248			5,418,551			-		-			-			17,274,040
Expenses:
Property operating expenses		1,933,796			2,933,476			1,370,635			-		-			-			6,237,907
Real estate taxes		690,196			683,329			490,421			-		-			-			1,863,946
General and adminsitrative costs		60			169,209			5,903			-		1,643,950			1,045,937			2,865,059
Depreciation and amortization		1,684,058			908,821			1,868,653			-		-			-			4,461,532
Operating expenses		4,308,110			4,694,835			3,735,612			-		1,643,950			1,045,937			15,428,444
Net property operations		1,626,131			1,226,413			1,682,939			-		(1,643,950	)		(1,045,937	)		1,845,596

Other income/(expense)		89,496			597,475			13,337			-		-			(84,797	)		615,511
Interest income		-			-			-			-		-			1,147,106			1,147,106
Loss on sale of equity securities		-			-			-			-		-			-			-
Other than temporary impairment-marketable securities		-			-			-			-		-			-			-
Interest expense		(2,436,527	)		(1,857,787	)		(2,101,920	)		-		-			-			(6,396,234	)
Loss from investments in unconsolidated real estate entities		-			-			-			-		(5,910,940	)		-			(5,910,940	)
Minority interest		-			-			-			-		-			168			168
Net loss applicable to common shares	$	(720,900	)	$	(33,899	)	$	(405,644	)	$	-	$	(7,554,890	)	$	16,540		$	(8,698,793	)

Balance sheet financial data at September 30, 2007:

Real estate assets, net	$	62,225,181		$	41,564,402		$	63,487,813		$	-	$	-		$	-		$	167,277,396
Restricted escrows		5,920,605			1,654,165			1,764,476			-		-			-			9,339,246
Investments in unconsolidated real estate entities		-			-			-			-		7,565,245			-			7,565,245
Deposit for real estate purchase		275,000			-			12,428,195			500,000		-			-			13,203,195
Due from Affiliate		-			-			-			-		-			-			-
Tenant and other accounts receivable		669,463			146,095			214,855			-		-			42,571			1,072,984
Acquired in-place lease intangibles, net		1,174,800			-			1,060,622			-		-			-			2,235,422
Acquired above market lease intangibles, net		483,663			-			309,776			-		-			-			793,439
Deferred leasing costs, net		712,904			-			740,954			-		-			-			1,453,858
Deferred financing costs, net		442,063			200,112			320,893			-		-			-			963,068
Other assets		68,654			695,855			153,556			-		-			236,272			1,154,337
Non-segmented assets		-			-			-			-		-			54,223,618			54,223,618
Total Assets	$	71,972,333		$	44,260,629		$	80,481,140		$	500,000	$	7,565,245		$	54,502,461		$	259,281,808

Mortgage Payable	$	54,629,210		$	40,725,000		$	53,025,000		$	-	$	-		$	-		$	148,379,210
Note Payable		-			-			-			-		-			-			-

15. Legal Proceedings

From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.

On March 29, 2006, Jonathan Gould, a former member of our Board of Directors and Senior Vice-President-Acquisitions, filed a lawsuit against us in the District Court for the Southern District of New York. The suit alleges, among other things, that Mr. Gould was insufficiently compensated for his services to us as director and officer. Mr. Gould sought damages of (i) up to $11,500,000 or (ii) a 2.5% ownership interest in all properties that we acquire and an option to acquire up to 5% of the membership interests of Lightstone SLP, LLC. We filed a motion to dismiss the lawsuit. After review of the motion to dismiss, counsel for Mr. Gould represented that Mr. Gould was dropping his claim for ownership interest in the properties we acquire and his claim for membership interests. Mr. Gould’s counsel represented that he would be suing only under theories of quantum merit and unjust enrichment seeking the value of work he performed. Counsel for the Lightstone REIT made motion to dismiss Mr. Gould’s complaint, which was granted by Judge Sweeney. Mr. Gould has filed an appeal of the decision dismissing his case, which is pending. Management believes that this suit is frivolous and entirely without merit and intends to defend against these charges vigorously.

On January 4, 2007, 1407 Broadway Real Estate LLC ("Office Owner"), an indirect, wholly owned subsidiary of 1407 Broadway Mezz II LLC ("Mezz II"), consummated the acquisition of a sub-leasehold interest (the "Sublease Interest") in an office building located at 1407 Broadway, New York, New York (the "Office Property"). Mezz II is a joint venture between LVP 1407 Broadway LLC ("LVP LLC"), a wholly owned subsidiary of our operating partnership, and Lightstone 1407 Manager LLC ("Manager"), which is wholly owned by David Lichtenstein, the Chairman of our Board of Directors and our Chief Executive Officer, and Shifra Lichtenstein, his wife.

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

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

Notes to the Consolidated Financial Statements

(continued)

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

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

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

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

PART I. FINANCIAL INFORMATION, CONTINUED:

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

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

Forward-Looking Statements

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

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

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

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

Overview

Lightstone Value Plus Real Estate Investment Trust, Inc. (the “Lightstone REIT” or “Company”) intends to acquire and operate commercial, residential and hospitality properties, principally in the United States. Principally through the Lightstone Value Plus REIT, LP, (the “Operating Partnership”), our acquisitions may include both portfolios and individual properties. We expect that our commercial holdings will consist of retail (primarily multi-tenanted shopping centers), lodging (primarily extended stay hotels), industrial and office properties and that our residential properties will be principally comprised of ‘‘Class B’’ multi-family complexes. We intend to acquire fee interests in multi-tenanted, community, power and lifestyle shopping centers, and in malls located in highly trafficked retail corridors, high-barrier to entry markets, and sub- markets with constraints on the amount of additional property supply. Additionally, we seek to acquire mid-scale, extended stay lodging properties and multi-tenanted industrial properties located near major transportation arteries and distribution corridors; multi-tenanted office properties located near major transportation arteries; and market-rate, middle market multifamily properties at a discount to replacement cost. We do not intend to invest in single family residential properties; leisure home sites; farms; ranches; timberlands; unimproved properties not intended to be developed; or mining properties.

Investments in real estate will be made through the purchase of all or part of a fee simple ownership, or all or part of a leasehold interest. We may also purchase limited partnership interests, limited liability company interests and other equity securities. We may also enter into joint ventures with affiliated entities for the acquisition, development or improvement of properties as well as general partnerships, co-tenancies and other participations with real estate developers, owners and others for the purpose of developing, owning and operating real properties. We will not enter into a joint venture to make an investment that we would not be permitted to make on our own. Not more than 10% of our total assets will be invested in unimproved real property. For purposes of this paragraph, “unimproved real properties” does not include properties acquired for the purpose of producing rental or other operating income, properties under construction and properties for which development or construction is planned within one year. Additionally, we will not invest in contracts for the sale of real estate unless in recordable form and appropriately recorded. As of September 30, 2008, Lightstone REIT has completed ten acquisitions: the St. Augustine Outlet Center, a retail outlet shopping mall in St. Augustine, Florida, on March 31, 2006; the Southeast Michigan Apartments, four multi-family communities in Southeast Michigan on June 29, 2006; the Oakview Power Center, a retail shopping mall located in Omaha, Nebraska, on December 21, 2006; 1407 Broadway, a 49% equity interest in a joint venture, formed to purchase a sub-leasehold interest in a ground lease to an office building in New York, New York, on January 4, 2007; the Gulf States Industrial portfolio, a portfolio of 12 industrial and 2 office buildings in Louisiana and Texas, on February 1, 2007; and has developed the Brazos Crossing Power Center after acquiring a land parcel in Lake Jackson, Texas, on June 29, 2007, the Sugarland and Katy Highway Extended Stay Hotels in Houston, Texas on October 17, 2007, the Southeast Apartments, which included, five multi family apartment communities, one in Tampa, Florida, two in Greensboro, North Carolina and two in Charlotte, North Carolina on November 16, 2007, the Sarasota Industrial Property, an industrial building in Sarasota, Florida on November 13, 2007, and on June 26, 2008, the Company acquired an interest in an entity with an interest in two outlet malls in Orlando, Florida.

Although we are not limited as to the geographic area where we may conduct our operations, we intend to invest in properties located near the existing operations of our Sponsor, in order to achieve economies of scale where possible. Our Sponsor currently maintains operations throughout the United States (Hawaii, South Dakota, Vermont and Wyoming excluded), the District of Columbia, Puerto Rico and Canada.

We may finance our property acquisitions through a variety of means, including but not limited to individual non-recourse mortgages and through the exchange of an interest in the property for limited partnership units of the Operating Partnership. At December 31, 2006, we qualified as a REIT and have elected to be taxed as a REIT for the taxable year ending December 31, 2008, 2007 and 2006. We plan to own substantially all of our assets and conduct our operations through the Operating Partnership. The Company has assessed it qualified as a REIT for the year ended December 31, 2007 and the period ended September 30, 2008.

We do not have employees. We entered into an advisory agreement dated April 22, 2005 with Lightstone Value Plus REIT LLC, a Delaware limited liability company, which we refer to as the “Advisor,” pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our board of directors. We pay the Advisor fees for services related to the investment and management of our assets, and we will reimburse the Advisor for certain expenses incurred on our behalf.

The Company intends to sell a maximum of 30 million common shares, at a price of $10 per share (exclusive of 4 million shares available pursuant to the Company’s dividend reinvestment plan, 600,000 shares that could be obtained through the exercise of selling dealer warrants when and if issued and 75,000 shares that are reserved for issuance under the Company’s stock option plan). The Company’s Registration Statement on Form S-11 (the “Registration Statement”) was declared effective under the Securities Act of 1933 on April 22, 2005, and on May 24, 2005, the Lightstone REIT began offering its common shares for sale to the public. Lightstone Securities, LLC (the “Dealer Manager”), an affiliate of the Sponsor, is serving as the dealer manager of the Company’s public offering (the “Offering”). As of December 31, 2005, the Company had reached its minimum offering of $2.0 million by receiving subscriptions for approximately 226,000 of its common shares, representing gross offering proceeds of approximately $2.3 million. On February 1, 2006, cumulative gross offering proceeds of approximately $2.7 million were released to the Company from escrow and invested in the Operating Partnership. As of September 30, 2008, cumulative gross offering proceeds of approximately $290.0 million have been released to the Lightstone REIT and used for the purchase of a 99.99% general partnership interest in the Operating Partnership. The Company expects that its ownership percentage in the Operating Partnership will remain significant as it plans to continue to invest all net proceeds from the Offering in the Operating Partnership.

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

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

Beginning with the year ended December 31, 2006, the Company qualified to be taxed as a real estate investment trust (a “REIT”), under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, no provision for income tax was recorded to date. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its ordinary taxable income to stockholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income that it distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company believes that it will be organized and operate in such a manner as to qualify for treatment as a REIT and intends to operate in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes. As of December 31, 2007, and September 30, 2008 the Company has complied with the requirements for maintaining its REIT status.

Portfolio Summary

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

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

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

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

(3) Currently undergoing renovations.

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

(4) Orlando Outlet Grand Opening in April 2008

2008 Acquisitions and Investments

There were no acquisitions during the third quarter of 2008.

Park Avenue Funding

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

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

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

Mill Run Interest

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

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

Material Agreement to Acquire Prime Interest

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

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

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

2008 Renovation and Expansion

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

The Company entered into a construction loan to fund the development of approximately 60,000 square feet of the power retail center at its Lake Jackson, Texas Location. The loan is secured by acquired real estate and is non-recourse to the Company. The total cost of the project, inclusive of project construction, tenant incentives, leasing costs, and land is estimated at $10.2 million. Because the debt financing for the acquisition may exceed certain leverage limitations of the REIT, the Board, including all of its independent directors has approved any leverage exceptions as required by the Company’s Articles of Incorporation. The center opened in April 2008, and three tenants occupy 100% of the property’s rentable square footage. The tenants, Petsmart, Office Depot and Best Buy all have 10 year leases.

Critical Accounting Policies

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

Inflation

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

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

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

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

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

Expense reimbursements made to both our Advisor and Property Manager will be expensed or capitalized to the basis of acquired assets, as appropriate. After the Company adopts SFAS 141R, all expense reimbursements will be expensed.

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

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

Income Taxes

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

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

The Company has net operating loss carry forwards of $0.7 million for Federal income tax purposes for the years ended December 31, 2007 and 2006. The availability of such loss carryforwards will begin to expire in 2026. As the Company does not consider it likely that it will realize any future benefit from its loss carry-forward, any deferred asset resulting from the final determination of its tax losses will be fully offset by a valuation allowance of the same amount.

Effective January 1, 2007, the Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 . FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. This Interpretation only allows a favorable tax position to be included in the calculation of tax liabilities and expenses if a company concludes that it is more likely than not that its adopted tax position will prevail if challenged by tax authorities. The adoption of FIN 48 did not have a material impact on the Company’s financial position, results of operation, or cash flows. As of September 30, 2008, the Company had no material uncertain income tax positions. The tax years 2005 through 2007 remain open to examination by the major taxing jurisdictions to which the Company is subject.

Results of Operations

We commenced operations on February 1, 2006 upon the release of our offering proceeds from escrow. Additionally, we acquired our first property, the Belz Outlets at St. Augustine, Florida, on March 31, 2006. Our management is not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of real estate and real estate related investments.

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

Revenues

Total revenues increased by approximately $4.2 million to approximately $10.3 million for the three months ended September 30, 2008 compared to $6.1 million for the comparable period last year. Base rents increased $4.1 million primarily due to our acquisition of a portfolio a land parcel in Lake Jackson, Texas, intended for immediate development as a power retail center, on June 29, 2007, which subsequently opened in April of 2008; two hotels in Houston, Texas on October 17, 2007; and five multi family apartment communities, one in Tampa, Florida, two in Greensboro, North Carolina and two in Charlotte, North Carolina on November 16, 2007. Tenant recovery income remained consistent with the prior year.

Total Property Expenses

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

Real Estate Taxes

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

General and administrative expenses

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

Depreciation and Amortization

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

Other Income

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

Interest Income

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

Interest expense

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

Loss from Investments in Unconsolidated Affiliated Real Estate Entities

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

Impairment charge

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

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

Revenues

Total revenues increased by approximately $12.8 million to approximately $30.0 million for the nine months ended September 30, 2008 compared to $17.2 million for the comparable period last year. Base rents increased $12.3 million primarily due to our acquisition of a portfolio of 12 industrial and 2 office buildings in Louisiana and Texas, on February 1, 2007; and a land parcel in Lake Jackson, Texas, on June 29, 2007, which subsequently opened in April of 2008; two hotels in Houston, Texas on October 17, 2007; and five multi family apartment communities, one in Tampa, Florida, two in Greensboro, North Carolina and two in Charlotte, North Carolina on November 16, 2007. Tenant recovery income increased approximately $0.4 million primarily as a result of our acquisition of a portfolio of 12 industrial and 2 office buildings in Louisiana and Texas, on February 1, 2007.

Total Property Expenses

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

Real Estate Taxes

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

General and administrative expenses

General and administrative costs increased by approximately $5.4 million to approximately $8.3 million, primarily as a result of the payment of acquisition fees $2.8 million, asset management fees increased $1.0 million due to the increase in the Lightstone REIT’s assets, and bad debt expense increased $0.8 million. We expect general and administrative expenses to increase in the future as a result of acquisitions in future periods

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $2.0 million for the nine months ended September 30, 2008 to $6.5 million, as compared to $4.5 million at September 30, 2007 primarily due to the acquisition and financing of new properties during the fourth quarter of 2007.

Other Income

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

Interest Income

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

Interest expense

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

Loss from Investments in Unconsolidated Affiliated Real Estate Entities

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

Impairment charge

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

Financial Condition, Liquidity and Capital Resources

Overview:

We intend that rental revenue will be the principal source of funds to pay operating expenses, debt service, capital expenditures and dividends, excluding non-recurring capital expenditures. To the extent that our cash flow from operating activities is insufficient to finance non-recurring capital expenditures such as property acquisitions, development and construction costs and other capital expenditures, we are dependent upon the net proceeds to be received from our public offering and debt offerings to conduct such proposed activities. We have financed and expect to continue to finance such activities through debt and equity financings. The capital required to purchase real estate investments will be obtained from our offering and from any indebtedness that we may incur in connection with the acquisition and operations of any real estate investments thereafter.

We expect to meet our short-term liquidity requirements generally through funds received in our public offering, working capital, and net cash provided by operating activities. We frequently examine potential property acquisitions and development projects and, at any given time, one or more acquisitions or development projects may be under consideration. Accordingly, the ability to fund property acquisitions and development projects is a major part of our liquidity requirements. We expect to meet our financing requirements through funds generated from our public offering and long-term and short-term borrowings.

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

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

We currently have $239.0 million of outstanding mortgage debt, and $7.4 million in a note payable. We intend to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. We may also incur short-term indebtedness having a maturity of two years or less.

Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate and the approval of our board of directors, and subsequent disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. As of September 30, 2008, our total borrowings represented 98% of net assets.

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

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

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

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

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

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

As of September 30, 2008 we had approximately $70.0 million of cash and cash equivalents on hand and $11.4 million of marketable securities. Our cash and cash equivalents on hand and marketable securities resulted primarily from proceeds from our Offering.

Summary of Cash Flows

The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (in thousands):

	Nine Months Ended September 30, 2008			Nine Months Ended September 30, 2007
Cash flows provided by (used in) from operating activities	$	3,854,494		$	3,186,514
Cash flows used in investing activities		(91,920,965	)		(116,656,722	)
Cash flows provided by financing activities		128,026,146			122,019,616
Net change in cash		39,959,675			8,549,408

Cash, beginning of the period		29,589,815			19,280,710
Cash, end of the period	$	69,549,490		$	27,830,118

Our principal source of cash flow is currently derived from the issuance of our common stock and the operation of our rental properties. We intend that our properties will provide a relatively consistent stream of cash flow that provides us with resources to fund operating expenses, debt service and quarterly dividends. Cash flows from operating activities were generated primarily from four multi-family communities in Southeast Michigan on June 29, 2006; the Oakview Plaza, a retail shopping mall located in Omaha, Nebraska, on December 21, 2006; a portfolio of 12 industrial and 2 office buildings in Louisiana and Texas, on February 1, 2007; and five multifamily apartment communities, one in Tampa, Florida, two in Greensboro, North Carolina and two in Charlotte, North Carolina on November 16, 2007, offset by temporary declines in operations at the projects under expansion and renovation, which included a retail outlet shopping mall in St. Augustine, Florida, a power retail center in Texas which was acquired on June 29, 2007, and opened April 2008.

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

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

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

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

Property	Loan Amount		Interest Rate			Maturity Date		Amount Due at Maturity

St. Augustine	$	26,820,623		6.09	%		April 2016	$	23,747,523
Oakview Plaza		27,500,000		5.49	%		January 2017		25,583,137
Gulf Coast Industrial Portfolio		53,025,000		5.83	%		February 2017		49,556,985
Houston Extended Stay Hotels (Two Individual Loans)		11,626,780		LIBOR + 1.75	%		April 2009		11,626,780
Camden Multi Family Properties - (Five Individual Loans)		79,268,800		5.44	%		December 2014		74,955,771
Southeastern Michigan Multi Family Properties		40,725,000		5.96	%		July 2016		38,138,605
Total of eleven outstanding mortgage loans at September 30, 2008	$	238,966,203						$	223,608,801

Brazos Crossing		7,416,941		LIBOR + 1.50	%		December 2009		8,200,000
Total of one note payable at September 30, 2008	$	7,416,941						$	8,200,000

Total mortgage and notes payable at September 30, 2008	$	246,383,144						$	231,808,801

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

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

New Accounting Pronouncements

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

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.

We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund the expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. We have not entered into any swap agreements or derivative transactions to date.

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

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

Property	Loan Amount		Interest Rate			Maturity Date		Amount Due at Maturity

St. Augustine	$	26,820,623		6.09	%		April 2016	$	23,747,523
Oakview Plaza		27,500,000		5.49	%		January 2017		25,583,137
Gulf Coast Industrial Portfolio		53,025,000		5.83	%		February 2017		49,556,985
Houston Extended Stay Hotels (Two Individual Loans)		11,626,780		LIBOR + 1.75	%		April 2009		11,626,780
Camden Multi Family Properties - (Five Individual Loans)		79,268,800		5.44	%		December 2014		74,955,771
Southeastern Michigan Multi Family Properties		40,725,000		5.96	%		July 2016		38,138,605
Total of eleven outstanding mortgage loans at September 30, 2008	$	238,966,203						$	223,608,801

Brazos Crossing		7,416,941		LIBOR + 1.50	%		December 2009		8,200,000
Total of one note payable at September 30, 2008	$	7,416,941						$	8,200,000

Total mortgage and notes payable at September 30, 2008	$	246,383,144						$	231,808,801

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

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

LIBOR at September 30, 2008 was 3.9263%. Monthly installments of interest only are required through the first 12 months for the St. Augustine loan, and monthly installments of principal and interest are required throughout the remainder of its stated term. Monthly installments of interest only are required through the first 60 months for the Southeastern Michigan multi-family properties, and through the first 48 months for the Camden Multi-Family properties’ loans, and monthly installments of principal and interest are required throughout the remainder of its stated term. The remaining loans are interest only until their maturity, at which time the amounts listed in the table above are due, assuming no prior principal prepayment. Each of the loans is secured by acquired real estate and is non-recourse to the Company.

ITEM 4. CONTROLS AND PROCEDURES.

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

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

PART II. OTHER INFORMATION:

ITEM 1. LEGAL PROCEEDINGS

From time to time in the ordinary course of business, the Lightstone REIT may become subject to legal proceedings, claims or disputes.

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

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

During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933, and we did not repurchase any of our securities.

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

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

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

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

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

	September 30, 2008

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION.

None.

PART II. OTHER INFORMATION, CONTINUED:

ITEM 6. EXHIBITS

Exhibit Number		Description

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

*Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.

Date: November 14, 2008	By:	/s/ David Lichtenstein
		David Lichtenstein
		Chairman, President and Chief Executive Officer (Principal Executive Officer)

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