I am referencing Microsoft.Web.Administration 7.0.0 in my web application. Will it cause problems if my application is hosted in IIS 8.5? Has anyone come across any issues?
No it should not cause any trouble, actually make sure you reference 7.0.0.0 and that should be fine.
What people usually experience problems is when referencing 7.9.0.0 which ships with IIS Express causing lots of confusion and failures.
7.0.0.0 is the same version that ships with Windows 8 and 8.1 so you are all good.