A different type of medical property

Innovative Industrial Properties has filed with the SEC to sell 8.75 million shares of common stock in an IPO with an expected initial public offering price of $20 per share. In addition, the REIT has applied to be listed on the New York Stock Exchange under the symbol IIPR. As one might expect with a such a firm, the REIT has an experienced management team, who previously were part of the management teams of BioMed Realty Trust and Alexandria Real Estate Equities.

So far, so expected. But, as the IPO filing notes:

“Innovative Industrial Properties, Inc. is a newly-formed, self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities.”

Is this the first REIT focused on the medical marijuana real estate market?

Considering that marijuana — even for medical use — remains illegal under federal law (despite a patchwork of legalizations in more than half of the states), a review of the risk factors outlined in the Form S-11 shows a mix of factors both general and specific. For example, the following is the sort of boilerplate that one might find in any IPO:

“We were recently formed and have no operating history and may not be able to operate our business successfully, or generate sufficient revenue to make or sustain distributions to our stockholders.”

While this is perhaps a bit more specific to Innovative Industrial Properties’ niche market:

“Current favorable state laws relating to cultivation and production of medical-use cannabis may be modified or eliminated in the future, and new laws that are adverse to the business of our tenants may be enacted.”

And this should raise concerns for investors, as real estate typically uses rather a lot of financing:

“We and our tenants may have difficulty accessing the service of banks, which may make it difficult to contract for real estate needs.”

Despite the risks, there may be a lot of potential investors who are interested in getting in on the ground floor, so to speak, of the multibillion-dollar cannabis industry. But I expect institutional real estate investors are likely to keep their distance.

LorettawebfinalThe views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.

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Loretta Clodfelter is editor of Institutional Real Estate Americas.