Making a large scale map for Unity 3D?

I am interested in making a large scale city map in Unity 3D, but I don’t know how to go about doing it efficiently. I of course can’t make it a single model because the game couldn’t render all those polygons in real time. I have considered making a complete, un-detailed map of the city with models for all the little things that get loaded when a player is nearby, but I don’t know if this is the best way to do it.

Yes the second thing. Use LOD. And depending on the complexity and size, you may want to dynamically load/unload things too. This has been asked and answered before, you can use the Search feature. Or just google it.