3D Terrain or Mesh Grid

I am currently developing a simple city builder to further enhance my skills with Unity3D. Unfortunately, I face the dilemma of creating a tile map for building placement(snap to grid, well you could cast position to integer to snap to 1.0fx1.0f tiles), controlling citizen movement speed , collisions etc.

Currently I have a series of tile prefabs(cubes with scripts) instantiated in unity based on a 3D array of the x,z coordinates and height (y). Apparently using too many game objects can pose a problem(tons of lag) in say a map of 1000x1000 tiles. There are two solutions to the problem as I am aware(i think).

(1) Render a Mesh

I made a mesh for the first time however, building the mesh is fine but how do I select a tile? I have my tile class with the various properties which I want to apply to the mesh squares (the 2 triangles). The question is how would I use a mesh to build a 3D tilemap for modifying each tile/selecting/accessing etc.

(2) Split a Terrain

I was searching google how to make an efficient 3D grid map and I found some questions on unity3D questions about splitting a terrain into a grid and using it for rts/citybuilder type games.

Perhaps one of you guys can recommend another method or clarify how to accomplish my goal?

Thanks!

EDIT::BELOW

 using UnityEngine;
 using System.Collections;
 using System.Collections.Generic;
 
 public class MeshMap : MonoBehaviour 
 {
     public float[,] tiles;
 
     List<Vector3> newVertices = new List<Vector3>();
 
     List<int> newTriangles = new List<int>();
 
     List<Vector2> newUV = new List<Vector2>();
 
     private Mesh mesh;
 
     private float tUnit = 0.25f;
     private Vector2 tStone = new Vector2(1, 0);
     private Vector2 tGrass = new Vector2(0, 1);
 
     private int squareCount;
 
     void Start()
     {
         GenerateTerrain();
         BuildMesh();
         UpdateMesh();
     }
 
     void Update()
     {
         UpdateMesh();
     }
 
     void GenerateSquare(int x, float y, int z, Vector2 texture)
     {
         newVertices.Add(new Vector3(x, y, z));
         newVertices.Add(new Vector3(x, y, z + 1));
         newVertices.Add(new Vector3(x + 1, y, z + 1));
         newVertices.Add(new Vector3(x + 1, y, z));
 
         newTriangles.Add(squareCount * 4);
         newTriangles.Add((squareCount * 4) + 1);
         newTriangles.Add((squareCount * 4) + 3);
         newTriangles.Add((squareCount * 4) + 1);
         newTriangles.Add((squareCount * 4) + 2);
         newTriangles.Add((squareCount * 4) + 3);
 
         newUV.Add(new Vector2(tUnit * texture.x, tUnit * texture.y + tUnit));
         newUV.Add(new Vector2(tUnit * texture.x + tUnit, tUnit * texture.y + tUnit));
         newUV.Add(new Vector2(tUnit * texture.x + tUnit, tUnit * texture.y));
         newUV.Add(new Vector2(tUnit * texture.x, tUnit * texture.y));
 
         squareCount++;
     }
 
     void GenerateTerrain()
     {
         tiles = new float[100,100];
 
         for(int z = 0; z < tiles.GetLength(0); z++)
         {
             for (int x = 0; x < tiles.GetLength(1); x++)
             {
                 tiles[z,x] = Mathf.PerlinNoise(x, z);
             }
         }
     }
 
     void BuildMesh()
     {
         for (int z = 0; z < tiles.GetLength(0); z++)
         {
             for (int x = 0; x < tiles.GetLength(1); x++)
             {
                 GenerateSquare(x, tiles[z,x], z, tStone);
             }
         }
     }
 
     void UpdateMesh()
     {
         mesh = GetComponent<MeshFilter>().mesh;
         mesh.Clear();
         mesh.vertices = newVertices.ToArray();
         mesh.triangles = newTriangles.ToArray();
         mesh.uv = newUV.ToArray();
         mesh.Optimize();
         mesh.RecalculateNormals();
 
         squareCount = 0;
         newVertices.Clear();
         newTriangles.Clear();
         newUV.Clear();
     }
 }