A Westwood Village business improvement district approved only last month by the Los Angeles City Council is already facing challenges from property owners, including billionaire developer Alan Casden.

Owners of the 47-room Hilgard House Hotel last week filed a lawsuit against the city of Los Angeles and the BID’s board of directors seeking an injunction to halt the establishment of the district, claiming it violates state law.

And Casden wants the proposed assessment on his Palazzo Westwood mixed-use development reduced or even eliminated. The Palazzo contains many residential units, which presumably wouldn’t benefit much from a business district.

His attorney has sent a letter to the city stating that “Casden will have no choice but to file suit” if the assessment isn’t reduced. If the 4-acre Palazzo were removed from the BID, that would trim the district’s revenue base.

The objections are important because they could imperil the establishment of the BID, which has been touted as the best chance to revive the sinking fortunes of the formerly thriving and conspicuous Westwood. The Hollywood BID, for example, is credited with helping turn around that neighborhood.

The BID would fund services such as sidewalk cleaning and graffiti removal, which would be paid for by about $1 million a year in assessments on commercial property owners within its borders.

After years of failed attempts, proponents of the BID appeared to clear a final hurdle last month when the City Council approved the district’s formation in a 12-0 vote.

However, the owners of Hilgard House, Westwood Investments Ltd., believe that the lodging will receive fewer services because it is located on the periphery of the village. But its lawsuit challenges the entire legal underpinnings of the BID, citing a state law that prohibits levying special assessments on property owners that are disproportionate to the benefits received.

“In our view it’s unconstitutional,” said hotel attorney Dennis A. Winston.

Casden’s attorney sent his letter to the city a day before the businessman appeared at an April 26 council meeting on the issue. He argued he shouldn’t have to pay an estimated $77,000 annual assessment because Palazzo Westwood is mostly residential. His complex has 350 apartments comprising 370,000 square feet, and just 50,000 square feet of retail, including a Trader Joe’s.

“We feel we are being treated unfairly and illegally by the establishment of the business improvement district that assesses our property in violation of established law,” he told the council. “The city engineer can call this a pig but it’s still an apartment house.”

Casden also told officials he already agreed to provide 72 services, including sidewalk cleaning and graffiti removal, as a condition for the approval of Palazzo, which opened in 2008.

Councilman Paul Koretz, who represents Westwood and has been pushing hard for the BID’s establishment, said he was assured by the City Attorney’s Office it could defend challenges from both the hotel and Casden.

He predicted that once the BID’s improvement work gets going, the hotel’s owners, who will be on the hook for $3,800 a year, would “look back and say, ‘Why did we oppose this?’”

As for the Palazzo, Koretz said that similar mixed-use properties have been included in other BIDs in the past, and that he believed Casden might not follow through with his legal threats.

“I think there’s a reasonable chance they’ll let it go and move on with their lives,” the councilman said. “I can’t imagine it’s really worth it for him to continue to fight and to file a lawsuit.”

Casden and his attorney did not return a call for comment. In this issue, the Business Journal estimates Casden to be worth $2.63 billion, making him No. 12 on the list of Wealthiest Angelenos.

A hearing on the hotel’s injunction request in Los Angeles Superior Court has not yet been scheduled.

Fourth time’s the charm?

The BID has been sought by property owners in response to the declining fortunes of Westwood Village, which was a popular shopping and nightlife destination until a 1988 gang shooting that killed a young woman. The neighborhood has gotten shabbier since then, with vacant storefronts and litter-strewn sidewalks.

In an attempt to improve the area, the first Westwood BID was formed in 1995, but it was shut down by the City Council after $660,000 in assessments vanished in 2001. Since then, there have been at least three attempts to relaunch one, but they have been stymied by some property owners led by Casden, insiders have told the Business Journal.

In late 2009, the newly elected Koretz made reviving a BID a top priority. He made the strategic move of including office towers on Wilshire Boulevard in the BID to dilute opposition from property owners in the village. He asked Kambiz Hekmat, whose Indivest Corp. owns two of those Wilshire high-rises, including the Murdock Plaza building, to lead a steering committee to relaunch the district.

Hekmat did not return calls for comment.

Early on in the process, organizers also tried to appease Casden by tinkering with the assessment formula to lower his fees. Koretz said the assessments on the Palazzo were lowered from about $125,000 a year down to the current estimated $77,000.

“There certainly was an effort to try to be as fair as possible to Casden and his project,” he said.

The annual assessments range from about $1,200 for the smallest parcel to $72,500 for the largest, according to documents that BID proponents filed with the city. Casden’s Palazzo project would be assessed at $77,000 because it covers two parcels.

In addition, Koretz’s office met with the hotel’s owners, who have run it since it opened in 1985, but hotel attorney Winston said the talks didn’t go well.

“One of the options we wanted was to be excluded from the BID, but it didn’t seem as though the city was particularly receptive to that,” he said.

Despite the opposition, Koretz’s maneuvering appears to have paid off. Prior to the City Council’s vote, a mail-in vote among property owners last month approved the proposed district by a 2-to-1 margin, which was required prior to the council vote. The ordinance establishing the BID is scheduled to go into effect June 9.

“I would be surprised if it didn’t go forward as scheduled,” Koretz said. “We’re anxious to see Westwood Village start to move toward its former glory.”