Company: IIPR
Filing Date: 2025-11-04
Form Type: 10-Q
Source: 0001677576-25-000005
Chunk: 22

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-11-04
Form: 10-Q
Item: Part II, Item 1A
Chunk 22
---
 its affiliates. A deterioration in the financial condition of the borrower or its affiliates could impair their ability to service the loan or meet other obligations under the IQHQ Credit Facility in a timely manner. 

There can be no assurance that we will recover the full value of our investment in the IQHQ Credit Facility. In the event of a default or restructuring, our ability to recover principal or interest could be delayed, reduced, or eliminated. While the loan is secured by a pledge of a majority ownership interest in IQHQ REIT’s Fenway Center project held by an 

48

Table of Contents

affiliate of IQHQ REIT, this collateral does not generate cash flow and is not expected to contribute to repayment of the loan under the IQHQ Credit Facility. A decline in the value of the pledged interest in the Fenway Center project could reduce the amount recoverable in the event of a default, particularly because the pledge is subordinate to certain construction financing. Additionally, the real estate collateral securing our investment in the IQHQ Credit Facility may be negatively impacted by market fluctuations, changes in environmental and zoning laws, casualty or condemnation losses, regulatory limitations on rents, decreases in property values, changes in the appeal of properties to potential tenants, changes in supply and demand for competing properties in an area, the financial resources of potential tenants, changes in availability of debt financing that may render the sale or refinancing of properties difficult or impracticable, changes in building, environmental and other laws, energy and supply shortages, various uninsured or uninsurable risks and other unforeseen occurrences.

In addition, if we fail to meet our separate funding obligations under the Securities Purchase Agreement with respect to the purchase of IQHQ Preferred Stock, the interest rate payable to us under the IQHQ Credit Facility may be reduced by up to 3.0% per annum. This would negatively affect our investment returns even absent a borrower default. Accordingly, this investment exposes us to borrower credit risk, structural subordination, potential collateral impairment, and other uncertainties that could adversely affect our return on investment and financial condition.

Our investment through the IQHQ Credit Facility likely will not qualify as a “real estate asset” for our REIT asset test requirement that 75% of the value of our total assets be represented by real estate assets, cash, cash items and government securities. If the investment doesn't qualify as a "real estate asset", any related interest income will not qualify as “good income” for our REIT income test that requires that we derive directly or indirectly at least 75% of our gross