The assumption doing the most work in that situation was that "reinvested" means "not yet taxable." It does not, and REITs in particular are aggressive with ordinary income distributions because the pass-through structure requires them to distribute, regardless of whether you took cash. Your CPA knew because CPAs who work with REIT investors see this constantly. The offering materials almost never surface it at the income-timing level.
The risk you did not name: this compounds if you hold across multiple non-traded REITs or add positions in years where you know a financing event is coming. Each fund declares on its own schedule, and you can accumulate taxable distributions across vehicles in ways that are hard to forecast 12 months out.
Two structural things worth knowing for next time. First, the timing of when a private REIT declares versus when it distributes can shift your taxable year, so ask the fund administrator for the prior year's tax calendar before you commit capital. Second, if you are modeling a refi or a new loan application 18 to 24 months out, your CPA needs to see the projected 1099-DIV from every REIT position before that tax year closes, not after. The underwriter is looking at adjusted gross income, and phantom income hits that number the same way a W-2 does.
The lender's two-week delay is actually the optimistic outcome. If the underwriter had been less patient or your debt-service coverage had less cushion, that income line could have moved your DTI enough to reprice or kill the deal.
For the tax question specifically, confirm with your CPA how the ordinary income versus return-of-capital breakdown on your 1099-DIV has been classified each year since 2019, because that affects your cost basis and future sale treatment. That is a licensed professional conversation, not one to reconstruct from the offering documents.
What does the rest of your REIT position look like now, and do you have another financing event on the Cleveland asset in the next couple of years?
