In the bowl of a standing mixer, combine the warm water, yeast, and 1/4 tsp sugar. Let it sit for 5 minutes.
Once the yeast foams up, stir in the milk, sugar, egg, salt, melted butter, and vanilla extract.
Add half of the flour to the yeast mixture and combine until well incorporated.
Add the remaining flour slowly and mix with a dough hook for 5-6 minutes or until the dough is smooth and slightly sticky.
Lightly flour your working surface and roll out the dough a knead it for 1 minute with your hands.
Form the dough into a ball and place it in a greased bowl then cover it and place it in a warm place for 2 hours or until the dough doubles in size.
Place the Nutella in a small bowl and microwave until the Nutella becomes loose.
When the dough has doubled in size, roll it onto a lightly floured surface. Using a rolling pin, flatten the dough into a 15x10 rectangle. Spread the Nutella over the dough within 1/2 inch of the edges.
Sprinkle the cinnamon over the dough within 1/2 inch of the edges.
Beginning at the 15-inch side, tightly roll the dough into a log.
Using unflavored dental floss, cut 12 rolls and place them on a buttered 9x13 baking dish.
Cover the rolls and place them in a warm place. Let them rise for 45 minutes or until the rolls double in size.
Preheat oven to 350 degrees F.
Once the rolls double in size, place them in the oven and bake them for 28-30 minutes.
While the rolls bake, prepare the cream cheese frosting by combining the softened cream cheese, powdered sugar, and warm milk until nice and smooth.
Spread the cream cheese frosting all over the cinnamon rolls and enjoy!