Despite winning approval from the Los Angeles City Council earlier this month, Regent Properties’ $70 million Hollywood Marketplace retail-cinema complex is now faltering.

A lawsuit filed by the owner of two office buildings near the project site has prompted two of Regent’s key tenants to cancel their leases, and replacement tenants are declining to sign up because of the lawsuit, sources said.

“(Tenants) don’t want to be attached to a project they’re concerned may be delayed,” said Roxana Tynan, economic development deputy for L.A. City Councilwoman Jackie Goldberg, who represents Hollywood. “We’re going to save it, but it’s a Hail Mary pass.”

At the heart of the lawsuit: parking.

A surface lot that for years has been used by tenants of nearby office buildings is now targeted to be the site of a new 500-space parking structure.

And the owner of those office buildings, Meringoff Equities, has been feuding with Regent over how many of the structure’s spaces will be reserved for office tenants and how many will be used by Marketplace customers.

It’s a scenario being played out in various forms throughout Hollywood. A number of big entertainment/retail projects being developed are targeted for sites that have been surface lots, where tenants of nearby office buildings park. Because Hollywood office buildings are decades old, they do not have subterranean or adjoining parking structures like modern complexes. Concerns are being raised over how the spaces in the new parking structures will be apportioned between office tenants and customers of the new projects.

“People were under the false impression that (Hollywood) surface lots will remain forever. They’re all going to be developed at some point,” said Jose Malagon, chairman of the Cahuenga District Coalition. “We need to identify surface lots and make sure they remain parking, so we don’t wake up and have great buildings and not enough parking.”

Cahuenga Boulevard alone has lost 250 parking spaces to new development in the past couple of years. Farther west along Hollywood Boulevard, a lot to the west of the Mann’s Chinese Theatre will soon be lost to a retail development. And a garage by the old Holiday Inn was recently demolished to make way for TrizecHahn Corp.’s Hollywood & Highland retail-entertainment project.

Of course, some of the larger developments will have their own parking and other lots could be redeveloped with structures. But the economics are challenging because surface lots often serve as parking sites for multiple buildings.

“We’re going to need to work cooperatively with the community in developing methods of parking to serve the areas between Highland and Vine,” said Jeffrey Skorneck, project manager for economic development for the L.A. Community Redevelopment Agency.

The Hollywood Chamber of Commerce and Business Improvement District recently formed a task force to study parking issues. They have asked the CRA to examine the area’s parking needs if all the properties in the Hollywood area were developed to their highest and best uses.

“Under no circumstances do we want to prevent someone from developing their property, but we’re troubled when spaces disappear,” said Ira Dankberg, chairman of the parking task force.

The biggest potential casualty to date has been Regent’s Hollywood Marketplace complex.

First announced in early 1998, the project calls for a complex to be built at Sunset Boulevard and Vine Street and for the adjacent Doolittle Theatre to be refurbished.

Just to the north are the office buildings owned by Meringoff Equities, which, along with its affiliated property management company M & S; Management, filed suit last June, contending that the CRA inadequately analyzed the Marketplace’s impact on parking.

Stephen Meringoff, owner of Meringoff Equities and M & S;, said the 1,500 tenants in his company’s two buildings “were the most impacted by this (Marketplace) development.”

Meringoff argues that Marketplace customers, and patrons of the Doolittle Theatre and a nearby library, would likely squeeze out his buildings’ tenants, even with a 920-space parking structure to be built on the site.

“We want this project developed best for everyone in the area not just new companies, but those companies that worked hard at rebuilding Hollywood,” said Harvey Englander, a spokesman for M & S.; “We think everyone can coexist.”

As of late last week, the parties were expected to soon settle the dispute. The proposed settlement calls for M & S; to pay the construction cost, value of air space and operating costs for a portion of the 500-space structure and have exclusive use of half the spaces for its tenants under a long-term leasehold.

But even with a settlement imminent, the project’s future is still up in the air.

“We would like nothing more than for a six-month-old lawsuit that stopped our project in its tracks to settle this week,” said Doug Brown, managing partner with Regent. He declined further comment.

Among the tenants that had planned to locate in the Marketplace are Good Guys, Bed Bath & Beyond, Borders Books & Music, Toys ‘R’ Us, Cost Plus Imports, and Mann Theatres.

Fearful that the project is in trouble, the Hollywood Chamber of Commerce sent out a “member alert” asking members to write a letter urging M & S; to drop its lawsuit.

“The point has now been reached where the lawsuit is jeopardizing the entire project,” reads the letter, which is signed by chamber President and CEO Leron Gubler and board Chairman Oscar Arslanian.

“Clearly, (the project) will be really supportive of the (office) tenancy, with the retail and restaurants people have been asking for for 20 years,” Arslanian said.

The question is whether the Regent project will be able to pick up where it left off. One source said it’s hard to bring tenants back once they’ve left; Hollywood is still a tough market distinguished more by hype than proven success stories thus far.

“It’s axiomatic, tenants will go with the opportunity, which is about location and timing,” said real estate consultant Larry Kosmont. “When the timing gets obscured, tenants get fickle. It’s not impossible (to get them back), but it’s a challenge.”

Tynan said that while Regent has lost time and has some catching up to do, its window of opportunity hasn’t closed.

“I’m confident we can bring it back, but it certainly has sent us scrambling. They really have to go back and start over after the lawsuit is dropped,” Tynan said. “It’s still a very attractive place to be.”