In this booming Gulf emirate, home to soaring personal wealth, hundreds of new skyscrapers and a ski slope plugged into a shopping mall, U.S. private equity investors are pouring in to check out potential investments.

And while Dubai's eye-popping growth is alluring for anyone with deep pockets, some major private equity players interviewed here this week remain cautious. They prefer to stay on the sidelines for now, to see if Dubai's expansion is a Las Vegas in the making, or an overheated oasis.

Is this a bubble or is this real? Will people fill all these buildings? Steven Rattner, founding principle of New York-based Quadrangle Group, asked in an interview with Reuters this week at the Super Return Middle East conference.

David Bonderman, co-founder of Texas Pacific Group, offered his own cautionary view about jumping into fast developing regions, especially places like the Middle East where long-term relationships are so important.

It's all about knowing the culture, he said, telling a story about managers of a Chinese company his firm invested in, who, after the deal closed, started a new business with the same name across the street.

Economic growth in the Gulf Arab region is staggering, growing at more than 10 percent annually in some areas thanks in part to rising oil prices.

The extreme example of this growth is in Dubai, home to more than one million people and one of the seven emirates comprising the United Arab Emirates.

For private equity firms, Dubai is a place that both symbolizes the region's potential to boost investment returns, and its potential to sink them if there is not enough demand for the many construction projects underway.

CONSTRUCTION BOOM

Bumper to bumper traffic begins just after sunrise and remains constant throughout the day. The construction boom can best be seen on Sheik Zayed Road, which follows the coastline and cuts through the clusters of skyscrapers under construction.

On one side, the tallest building in the world is being built. On the other, the world's only seven-star hotel is in view, its round helipad perched above the beach.

By one estimate, around 17 percent of the world's construction cranes are here in this relatively small, arid slice of land hugging the Arabian Sea.

The emirate and all its luxuries has not only attracted tourists and high rollers, but corporate deal makers too.

Middle East merger and acquisition activity, while rising, is a tiny sliver of global M&A volume.

The region has 291 deals so far this year worth $38.75 billion, according to Dealogic, up from 125 deals worth $10.1 billion four years ago.

By comparison, North Asia has seen 4,836 deals this year worth $245.8 billion, with North America tallying 8,674 deals on $1.8 trillion of volume, according to Dealogic.

Bolstered by cheap and easy debt, U.S. private equity firms changed the corporate landscapes at home and in Europe in the last two years, doing more than $1 trillion worth of leveraged buyouts and taking big public companies such as Hilton Hotels into private ownership.

With the credit crunch hitting the U.S. economy, now some firms are looking to partner with some of their Gulf Arab institutional investors on deals in the region. Some statistics show that the time may be right.

Within the Gulf Cooperation Council (GCC), more than 90 per cent of all commercial activity is estimated to be controlled by family-owned firms, according to a joint report by Dow Jones and Ithmar Capital. These firms number over 5,000, hold combined assets of more than $500 billion, and employ 70 per cent of the workforce, the report says.

That statistic is a good sign for private equity firms, which historically have bought family-owned companies. The report says GCC private equity fundraising reached $10 billion in 2006.

(Reporting by Michael Flaherty; editing by Elaine Hardcastle)

Dubai