Is the real estate market overblown? Various statistics show that real estate over the past decade has been one of the highest-earning investment categories, outpacing almost any other financial instrument. Specifically, through the third quarter of this year, National Council or Real Estate Investment Fiduciaries Index was up 11.7%, the National Association of Real Estate Investment Trusts Index was ahead 14.2% while the S&P 500 had climbed just 9.5% in the preceding 10 years.

Is it time to get out?

Yesterday, the shareholders of Wellsford Real Properties (WRP $19) voted to liquidate the company. The chairman of the company and a longtime real estate investor, Jeff Lynford, has decided his shareholders are better off putting their money elsewhere. He’s not alone.

According to the Real Estate Research Corporation, so far this year “five large REITs with stock market values totaling $10.9 billion have closed or plan to take their business private.” What does this tell us?

Mr. Lynford’s decision stemmed from his mounting conviction that the real estate market is overbought and that opportunities for further gains are limited. This realization has been building for some time. Mr. Lynford began selling off properties in 2001, and has since then disposed of more than $1 billion of assets.

At first, he used the sale proceeds to pay down Wellsford’s debt. Then he began to buy 40% of the outstanding shares. Then he redeemed a preferred stock issue. Still, he could not find properties that looked appealing for investment.

Finally, the implementation of Sarbanes-Oxley regulations pushed Mr. Lynford to liquidate. Accounting expenses rose from $400,000 in 2003 to $1.4 billion in 2004 and other administrative charges went up as well. As Mr. Lynford says, “We couldn’t justify the G&A expense of remaining a public company.”

Has he left some money on the table? Certainly real estate markets these past few years, including the commercial and residential lines occupied by Wellsford, have been booming. Record levels of capital have been flowing into nearly every segment of the real estate industry, encouraged by low interest rates and sub par returns on competing investments.

Mr. Lynford claims the sales he has made were at or near top prices and could not likely be duplicated today. He also favors the old adage “no one ever went broke taking a profit.” A prediction by the RERC that returns may drop in the industry suggests that while Mr. Lynford may have been early, he may have had the right idea.

Wellsford’s stock price has risen nearly 20% since the beginning of 2001. Over the same period, the S&P 500 is off 3.1%. Certainly some other realty companies have fared better, but Mr. Lynford has provided reasonable returns to his investors.

Is Mr. Lynford bowing out of the real estate game? Not at all. Though his contract requires him to stay on and oversee the completion of the sale of the company’s remaining assets (valued at $158 million at cost),he is already considering his next venture.

He describes his career path as an arbitrage between public and private entities. A graduate of Princeton’s Woodrow Wilson School and the law school at Fordham University, Mr. Lynford first became involved in the real estate industry at A.G. Becker. In 1986 he co-founded Wellsford with Edward Lowenthal (who was originally CEO) as a private company to buy and develop real estate assets. Other participants in the venture were well-known investors William Simon and Raymond Chambers of Wesray and Eastdil Realty.

In this first incarnation, Mr. Lynford took advantage of contacts in the savings and loan industry to take over apartments that were being foreclosed. Wellsford bought up these units and stockpiled them in hopes of a market recovery, which eventually came his way. His success was such that in 1992 he was able to take the company public and raise $100 million. In 1997 he merged his company with Equity Residential, a large REIT owned by the real estate investor Sam Zell.

Where is he heading now?

Mr. Lynford hopes to start a private company investing in what he describes as “land entitlement.” He sees value in the initial upgrading of land, taking a property through the zoning and public approval process, obtaining a so-called “subdivision map,” introducing sewer and utility access, and otherwise readying the land for development. Mr. Lynford points out that these activities were once performed by savings and loans or by homebuilders, neither of which is active in the space any longer.

These activities require a professional staff, and the funding either to buy or option the land. Mr. Lynford is convinced the real estate industry has reached a point of inflection, where land owners may be tempted by high prices to sell their holdings, putting downward pressure on prices.

Mr. Lynford’s long history in the real estate business may have rendered him unduly cautious, but when successful investors begin to vote with their feet, others may soon follow. Especially when outfits like the RERC offer this kind of helpful insight: “With high prices, it is undoubtedly a good time to sell, but, as demonstrated, it is still a reasonable time to buy.”