The Village Inn is one of four in the city operated by the NYC Hostel Connection. (The Chelsea International Hostel, the Manhattan Inn and the Wanderers Inn are the other three.) Responding to a message on Facebook, a hostel rep said, "The status of the Village Inn is still pending."
The city has said that there are illegal hotel rooms in the residential building.
There's also a fairly lengthy discussion by an NYC Hostel Connection rep on Facebook regarding why the hostel was shut down:
[T]he big Hotel chains (e.g. Holiday Inn, Marriott, W, ad infinitum) have strong unions who's leaders have friends in high places in New York's political landscape ... When you're charging minimums like $300.00 per night and you start realizing your numbers are down because there are better options (i.e. Hostels) who do you complain to and/or attack. Answer: (Fill in this blank with your favorite Hostel). Despite the fact that this task force no longer reports to the Department of Buildings New York, they have taken to renegade tactics like unrelenting harassment in order to please their superiors (i.e. politicians, hotel union leaders – who, you got it, PAY THEM UNDER THE TABLE). ... So as our legal fees mount and we are forced to pay our Mortgages out of our own pockets...