1. Combine lukewarm milk, 1 tablespoon of sugar, and yeast in a medium bowl. Let sit for 10-15 minutes until foamy.
2. In a stand mixer bowl, mix flour, remaining sugar, salt, and butter. Add milk mixture and water, then mix until combined.
3. Knead dough at low speed until soft and sticky, about 5 minutes. Shape into a ball.
4. Place dough in an oiled bowl, cover, and let rise for 1 hour.
5. Divide dough into 12 portions. Roll each into a 20-inch rope and shape into pretzels. Let rise for 20-30 minutes.
6. Preheat oven to 375°F. Line trays with parchment paper.
7. Boil water in a saucepan, add baking soda. Boil pretzels for 40 seconds each side. Transfer to trays.
8. Whisk egg yolk with 1 tablespoon water. Brush pretzels with egg wash.
9. Bake for 12-14 minutes until golden brown. Cool for 5 minutes.
10. Combine sugar and cinnamon in a bowl. Brush pretzels with melted butter, then toss in cinnamon sugar.
11. Whip cream cheese and butter. Add sugar, cream, and vanilla; mix until smooth.