Company: IIPR
Filing Date: 2025-02-21
Form Type: S-3ASR
Source: 0001104659-25-016184
Chunk: 65

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-02-21
Form: S-3ASR
Chunk 65
---
 by the debtor would be qualifying “rents              
 from real property” if received directly by a REIT.                                                                                         |

If a loan contains a provision that entitles
a REIT to a percentage of the borrower’s gain upon the sale of the real property securing the loan or a percentage of the appreciation
in the property’s value as of a specific date, income attributable to that loan provision will be treated as gain from the sale
of the property securing the loan, which generally is qualifying income for purposes of both gross income tests, provided that the property
is not inventory or dealer property in the hands of the borrower or the REIT.

Interest on debt secured by a mortgage on real
property or on interests in real property, including, for this purpose, market discount, original issue discount, discount points, prepayment
penalties, loan assumption fees, and late payment charges that are not compensation for services, generally is qualifying income for
purposes of the 75% gross income test. However, if the loan is secured by real property and other property and the highest principal
amount of the loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of
(i) the date the REIT agreed to originate or acquire the loan or (ii) as discussed below, in the event of a “significant
modification,” the date we modified the loan, a portion of the interest income from such loan will not be qualifying income for
purposes of the 75% gross income test, but will be qualifying income for purposes of the 95% gross income test. The portion of the interest
income that will not be qualifying income for purposes of the 75% gross income test will be equal to the portion of the principal amount
of the loan that is not secured by real property — that is, the amount by which the loan balance exceeds the applicable value of
the real estate that secures the loan.

Interest on debt secured by mortgages on real
property or on interests in real property, including, for this purpose, prepayment penalties, loan assumption fees and late payment
charges that are not compensation for services, generally is qualifying income for purposes of the 75% gross income test. Under the applicable
Treasury Regulation (referred to as the “interest apportionment regulation”), if we receive interest income with respect
to a mortgage loan that is secured by both real property and other property, and the highest principal amount of the loan outstanding
during a taxable year exceeds