INNOVATIVE INDUSTRIAL PROPERTIES INC

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, which could materially affect our business, financial condition and/or results of operations. Except to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, and except as set forth below, there have been no material changes to the risk factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2025. The impact of macroeconomic conditions and industry-specific challenges have also had the effect of heightening many of the risks described in the “Risk Factors” included in our Annual Report on Form 10-K, such as those relating to tenant defaults and our ability to generate sufficient cash flows to service our indebtedness and make distributions to our stockholders. You should not interpret the disclosure of a risk to imply that the risk has not already materialized. The risks as described in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

Risks Related to Our Life Science Investments and Real Estate-Related Assets

Credit, structural and concentration risks related to our investment in the IQHQ Credit Facility, the IQHQ Preferred Stock and the IQHQ Alewife Mezzanine Loan may adversely affect our return on investment and financial condition.

Through IIP Life Science Investments LLC, a wholly owned subsidiary of our Operating Partnership, we became a member of a lender syndicate under the IQHQ Credit Facility through the funding of a $100.0 million loan to the operating partnership of IQHQ. Additionally, we increased our investment in IQHQ and its affiliates by providing a $245.0 million commitment under the IQHQ Alewife Mezzanine Loan.

The ability of IQHQ and its affiliates to meet their obligations under the IQHQ Credit Facility and the IQHQ Alewife Mezzanine Loan depends on numerous factors, including the performance of IQHQ’s real estate assets, prevailing market conditions in the life sciences and commercial real estate sectors, and the financial health of the respective borrowers and their affiliates. A deterioration in the financial condition of the respective borrowers or their affiliates could impair their ability to service the loan or meet other obligations under the IQHQ Credit Facility and IQHQ Alewife Mezzanine Loan Agreement in a timely manner.

There can be no assurance that we will recover the full value of our investments in the IQHQ Credit Facility or the IQHQ Alewife Mezzanine Loan. In the event of any default or restructuring, our ability to recover principal or interest could be delayed, reduced, or eliminated. The loan under the IQHQ Credit Facility is secured by a pledge of a majority ownership interest in IQHQ Fenway held by an affiliate of IQHQ, which pledge is subordinate to certain construction financing.

The IQHQ Alewife Mezzanine Loan is secured solely by pledges of the limited liability company interests in IQHQ-Alewife Member, LLC and in IQHQ-Alewife, LLC, the fee owner of the Alewife Park Property, and not by a mortgage on the Alewife Park Property. These pledged interests are structurally subordinate to the senior mortgage loan on the Alewife Park Property, so any recovery would be limited to the residual value of the property after repayment of that loan. In addition, we share the collateral on a pari passu basis with the existing mezzanine lender, an affiliate of which administers the loan, and we may not be able to control the timing or manner of enforcement.

The pledged collateral securing each of the IQHQ Credit Facility and the IQHQ Alewife Mezzanine Loan does not generate cash flow and is not expected to contribute to repayment of the related loan. A decline in the value of the pledged interests in the entities owning the Fenway Center project or of the Alewife Park Property could reduce the amount recoverable in the event of a default. Additionally, the value of the real estate underlying the collateral securing the IQHQ Credit Facility and the IQHQ Alewife Mezzanine Loan 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.

As of September 30, 2026, our aggregate funded investment in IQHQ and its affiliates was approximately $411.0 million. This consisted of $100.0 million under the IQHQ Credit Facility, approximately $111.0 million under the IQHQ Alewife Mezzanine Loan, and $200.0 million in IQHQ Preferred Stock and the IQHQ Warrants. In addition, approximately $134.0 million of our commitment under the IQHQ Alewife Mezzanine Loan remained unfunded, and the timing of those advances is not within our control. These investments represented approximately 16% of our total assets as of September 30, 2026, and they are a significant concentration of credit risk in a single privately held counterparty and its affiliates. The IQHQ Preferred Stock ranks junior to IQHQ's Series A and Series D‑1 Preferred Stock and, as an equity security, effectively junior to IQHQ's indebtedness. In addition, our investments in the IQHQ Preferred Stock, the IQHQ Warrants and the IQHQ Credit Facility secure our obligations under the IIP Life Science Credit Facility. As a result, a deterioration in the financial condition of IQHQ or its affiliates, or a default on any one of these investments, could adversely affect several of our investments at the same time. It could also adversely affect our liquidity and our ability to borrow under the IIP Life Science Credit Facility, and it could have a disproportionate adverse effect on our financial condition, results of operations and ability to make distributions to our stockholders.

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 such investment does not qualify as a “real estate asset,” then it cannot represent more than 5% of the value of our total assets under an additional REIT asset test. If the investment does not 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 income, excluding gross income from prohibited transactions, from investments relating to real property or mortgages on real property, including “rents from real property.” While we presently believe we have adequate other qualifying real estate assets and income to meet these REIT asset and income test requirements, no assurances can be provided that these tests will be met in the future. If we fail the REIT asset test in any calendar quarter or we fail a REIT income test in any calendar year, and cannot avail ourselves of certain relief provisions, we would cease to qualify as a REIT.

We intend to treat the IQHQ Alewife Mezzanine Loan as a “real estate asset” for purposes of the REIT asset tests, and interest on the loan as qualifying income for purposes of the 75% gross income test, in reliance on the safe harbor set forth in IRS Revenue Procedure 2003-65. However, the Revenue Procedure does not prescribe rules of substantive tax law, and there can be no assurance that the IQHQ Alewife Mezzanine Loan will satisfy, or continue to satisfy, all of its requirements, including as a result of changes in the value of the Alewife Park Property or the composition of the fee owner’s assets. If the IQHQ Alewife Mezzanine Loan does not qualify for the safe harbor, the Internal Revenue Service could challenge its treatment as a real estate asset and the treatment of the related interest as qualifying income. Given the size of our investment, if such a challenge were sustained, we could fail to qualify as a REIT.