Toll Scorched in Arizona

"Toll Brothers, as the general partner, would make that call," the source says.

Executives from Meritage and Toll did not return calls seeking comment from TheStreet.com. A Simon representative declined to comment.

Regardless of whether the homebuilders abandon the project, the Simon Property writeoff raises questions about whether the companies are being conservative enough in their valuations of land holdings.

"Builders are not being aggressive enough, generally speaking," says an analyst who was on the Toll call last week. "They are not doing what Simon did."

Toll management said on the call that the company had just $59 million of joint venture writedowns in the quarter. Those were spread out over a few JVs, but Toll declined to give a breakdown.

The company's chief financial officer, Joel Rassman, said the impairments represented a small piece of the ventures' total asset values and were primarily related to the risk of JV investments.

Phoenix Falling

The Toll project is tied to land located in an area outside of Phoenix -- one of the country's hottest housing markets during boom time. Now, the region is getting hit hard by high inventories and reduced affordability.

Stephen East, a homebuilder analyst with Pali Capital, says he visited the market a month ago and was surprised at the "sheer amount of property."