A developer plans to start building a 42-unit condominium in June on two lots in Makiki formerly occupied by a small cluster of homes and apartments.

The five-story project at 1310 Pensacola St., about two blocks mauka of Kaiser Permanente, is part of a wave of urban development trying to capitalize on the housing market by replacing older, smaller residences with higher-density dwellings.

Pensacola Chelsea Building LLC, a company formed to develop the condo dubbed The Chelsea, expects to begin sales of an initial 22 units to owner-occupant buyers through a lottery later this month.

Prices range from $335,000 to $575,000 for one- and two-bedroom units, ranging in size from 650 to 950 square feet.

Kai McDurmin, an agent with project broker Coldwell Banker Pacific Properties, said the balance of the units are to be released for sale at a time yet to be determined.

Pensacola Chelsea Building, a company formed by a Chicago-area developer mostly involved in commercial projects, bought the roughly 20,000 square feet of land in September for about $2.5 million.

Demolition of the buildings on the site has already been completed.

Condo construction is expected to be completed in summer 2008.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.