At 1,053 feet high, Burj Al Arab is not only the world's tallest hotel, it is also larger than the Eiffel Tower. The facade, shaped to resemble a sail, is sparkling white by day and rainbow bright by night. And its 202 luxurious duplex suites are the height of luxury, luring wealthy Europeans and professional golfers to the city of Dubai, a modern metropolis being constructed on the Persian Gulf.

And, as if that weren't enough to put Dubai on the map, by 2008, the United Arab Emirates city is set to be home to the world's tallest tower: Burj Dubai, a combination of residential, lodging, and retail which will stand over 2,000 feet high, surpassing the Petronas Towers in Malaysia.

With booming commercial and residential real estate construction, Dubai is becoming the glowing gem of the Mideast.

“It's kind of a mini-commerce and transit hub, or vacation and leisure hub, not only for the Gulf but for the Indian subcontinent,” says Laine Kenan, a director at Arcapita, previously called Crescent Capital Investments Inc. The Atlanta-based private equity firm invests Mideast capital in real estate projects internationally.

Dubai's population grew from 714,000 in 1996 to an estimated 1.2 million in 2003. During that same period, the number of building permits approved annually by the government of Dubai grew from 1,370 to 2,148, and total buildings constructed annually jumped from 1,169 to 2,259 — the bulk of which were residential development.

Kenan says the secret of Dubai's success is that foreigners are able to easily make non-risky real estate investments and hold direct title of property in the city, unlike elsewhere in the region. Arcapita is currently building a 700-home master-planned golf course community there called Victory Heights.

Rather than holding title to the land, Arcapita has executed a 99-year ground lease. Kenan explains that while Dubai's government has approved of foreigners owning land, the United Arab Emirates government has not actually weighed in on the matter.

The modernism of the city is highlighted by the different commercial districts such as Dubai Sports City and Health Care City. In Internet City, Microsoft Corp. and Siemens AG have their regional offices.

“There are many large office buildings. The office demand is sparked by a lot of companies that want to locate their Mideast headquarters in Dubai,” says James Fetgatter, chief executive of the Association of Foreign Investors in Real Estate, located in Washington, D.C.

Much of the development in the city, including Burj Dubai, is by Emaar Properties, a public company listed on the Dubai Financial Market that has $7.7 billion in assets. Nakheel Properties, a government-held entity, also is a major player.

It appears large U.S. real estate investors have yet to enter the market. “It's so far from the U.S. that it's not an obvious destination for U.S. developers,” Kenan says. “If you were CalPERS, you probably would be hard-pressed to say I'm going to Dubai.”

Still, the strong appetite for real estate in the region is highlighted by the recent $220 million IPO of Addar Properties, a commercial real estate developer located in the neighboring city of Abu Dhabi. The offering was oversubscribed 458 times, bringing in $103 billion. The excess money was later refunded, but the company still netted $408 million.