The hotel's closure marks the end of an era for a vastly influential project. Schrager and former business partner Steve Rubell sparked a worldwide phenomenon when they renovated the building at 237 Madison Avenue in 1984, with French designer Andrée Putman.
With the first in the Morgans chain, they were credited with starting the trend for boutique hotels – smaller hotels with upscale accommodation, in fashionable urban neighbourhoods – which popped up in cities all over the globe following its success.
Last week, Schrager posted an image of himself and Rubell at the opening of the hotel to Instagram, captioned: "Steve and I introducing the first boutique hotel to the world. It started everything, sad to see it close today."
The 1927 building, designed by architect Andrew J Thomas, began life as the Hotel Duane before the duo took it over.
They plan to turn the building into 90 condos, with hotel rooms or corporate housing spanning three lower floors, and a restaurant at ground level.
Each of the homes will measure around 300 to 325 square feet (28 to 30 square metres) and cost between $700,000 and $750,000 (£540,000 to £580,000).
A three-floor penthouse with an undisclosed price tag has also been proposed. Work on the transformation is due to commence as soon as the deal closes.
Last year, Schrager said that micro apartments could help cities retain their diversity.
More recently, the hotelier and developer told Dezeen that the hotel industry is under threat from Airbnb, which his latest venture – the Public hotel in New York's Bowery neighbourhood – is aiming to counter.
New York's scarcity of space is resulting increasingly smaller accommodation. The city's first micro-apartment tower, designed by nArchitects, was completed in February 2016, while a micro hotel with tiny rooms by AvroKO opened in December.